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“Dollars, dollars.” Under the blazing sun, scores of currency traders are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The best time for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the voting concludes. President Javier Milei has imposed a limit on the peso to tame triple-digit price increases and currently it remains overvalued and reserves are exhausted, causing Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly racked 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 Peronism, and now the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to wrestle back control of the economy from the establishment on behalf of the people.

These key characteristics are also seen in his ally to the north, and by Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from the IMF for helping to control inflation in check. This plan shares similarities with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

However financial markets started to doubt in the government’s agenda in recent months after a shaky result in local polls and multiple corruption scandals. Solely large-scale financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror.

Farage to date committed few policies in writing except for proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to rein in the Bank of England, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His fiscal plans seem unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a promise for large tax reductions. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour aims this stance will enable it to portray Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there among rich backers who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, research indicates populists of any stripe often perform poorly when faced with real-world challenges (although each charismatic individual promises something unique).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand under populist governments,” argue the researchers.

Another intriguing finding of the research, though, is even with their negative impacts, populist figures are often effective at retaining office, lasting on average eight years, compared with four for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, the Argentine people are already bearing significant costs.