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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a country accustomed to holding the US dollar.

“The best time for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has imposed a limit on the currency to control soaring inflation and currently it is overvalued and reserves are exhausted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and currently the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising muscular policies to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep budget reductions – had earned praise from the IMF for helping to bring inflation in check. The programme has something in common with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be slain, no matter the cost.

However financial markets started to doubt in the government’s agenda lately following a poor performance in local polls and a series of corruption scandals. Only large-scale financial intervention from abroad 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 figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

Farage has so far committed few policies to paper except for proposals for large-scale removals, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies appear to be unsettled: concerned about being accused of proposing reckless spending, he lately dropped a promise for large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this position will allow it to depict the populist as intending to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor says there exist inconsistencies in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers calling for lower taxes and deregulation, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict there between wealthy supporters seeking Thatcherism on steroids, and this story of bringing back British jobs and industrial revival.”

Maintaining Control

In truth, research indicates populists of any stripe tend to fare well when confronting practical difficulties (although every populist leader promises distinct solutions).

Recent research in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often a tenth less in countries run by populist rulers than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, Argentina’s citizens are already bearing significant costs.