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“Cambio, cambio.” Under the blazing sun, dozens of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the 26 October congressional elections in a nation long used to saving in the US dollar.

“The best time for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economic experts across the spectrum anticipate a devaluation of the national currency after the election concludes. The president has placed a limit on the peso to control triple-digit price increases and now it is artificially high and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful measures to wrestle back command of the economy from the establishment for the benefit of the people.

These key characteristics are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had won plaudits from international lenders for contributing to bring inflation under control. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

However investors started to doubt in the government’s agenda in recent months following a poor performance in provincial elections and multiple graft allegations. Only large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with a bullish determination to enact public demand in the face of elite opposition.

Farage to date committed few policies to paper except for proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the Bank of England, possibly replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he recently dropped a promise for significant tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition aims this position will enable it to portray the populist as planning to bring back fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her approach of boosting government spending.

Jo Michell says there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers demanding tax cuts and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict here between wealthy supporters seeking radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader promises distinct solutions).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be 10% lower in nations run by populist rulers than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” contend the researchers.

Another intriguing finding from the study, however, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for eight years, compared with four for mainstream politicians.

In other words, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

Yet back in Buenos Aires, whether Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid significant costs.