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“Dollars, dollars.” Beneath the blazing sun, dozens of currency traders are offering US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a country accustomed to holding the US dollar.

“The optimal moment for purchasing is currently,” states a arbolito, refusing to provide her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum expect a depreciation of the Argentine peso after the voting concludes. The president has placed a limit on the peso to control triple-digit price increases and currently it is artificially high and foreign reserves are depleted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been hit by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful policies to wrestle back command of economic management from traditional elites for the benefit of the people.

These defining traits are shared by his political partner to the north, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for contributing to bring inflation under control. This plan shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But financial markets began losing confidence in Milei’s radical project lately after a shaky result in local polls and multiple graft allegations. Solely large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns regarding fiscal impacts with confident resolve to enact public demand in the face of elite opposition.

Farage has so far committed few policies in writing aside from a call for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment being a key part of the populist package.

His tax and spending policies seem in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor says there are contradictions within the populist platform, such as it is. “The party is funded by affluent backers calling for tax cuts and reduced rules, yet also talking a lot about the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There is a conflict here among rich backers who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (although each charismatic individual promises distinct solutions).

Recent research in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations governed by populist leaders than in comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is even with their negative impacts, populist figures tend to be good at holding on to power, remaining in power for eight years, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, the Argentine people have already paid significant costs.