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“Exchange, exchange.” Under the scorching heat, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a country accustomed to holding the greenback.

“The best time to buy is now,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Like her, economic experts across the spectrum expect a devaluation of the national currency once the election concludes. President Javier Milei has imposed a cap on the peso to tame triple-digit inflation and now it remains overvalued and foreign reserves are depleted, causing Argentina’s economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been racked by sovereign defaults and economic crises and its voters have been receptive over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to bring inflation under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a poor performance in local polls and multiple graft allegations. Only massive economic support by the US has prevented what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns about economic detail with confident resolve to implement public demand in the face of elite opposition.

The Reform leader to date outlined limited plans in writing except for proposals for mass deportations, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem in flux: concerned about being accused of proposing reckless spending, he recently abandoned a promise to make significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict Farage as intending to reintroduce fiscal tightening – a point Rachel Reeves has emphasized often, contrasting it with her strategy of boosting public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, research suggests neither left nor right populists often perform poorly when confronting real-world challenges (though of course every populist leader claims to offer something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist rulers compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders are often effective at holding on to power, lasting on average a considerable time, compared with shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.