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“Cambio, cambio.” Beneath the scorching heat, scores of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 midterm elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is now,” states a arbolito, refusing to provide her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso once the voting concludes. President Javier Milei has placed a cap on the currency to tame soaring price increases and currently it remains artificially high and reserves are exhausted, causing the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been receptive over the years to left-leaning populist movements, such as the powerful Peronist movement, and now the president’s conservative populism.

Milei is a textbook populist: captivating, unconventional, promising muscular measures to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – 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 the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But investors began losing confidence in the government’s agenda in recent months following a poor performance in provincial elections and multiple corruption scandals. Only massive economic support from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its leader, the former prime minister, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper except for proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: concerned about being accused of planning a Liz Truss-style splurge, he lately dropped a pledge to make significant tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray Farage as intending to bring back austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

An economics professor notes there are contradictions in Farage’s economic programme, as it stands. “The party is funded by affluent backers calling for lower taxes and reduced rules, but also emphasizing the grievances of working people and the loss in manufacturing employment,” he explains. “There is a conflict there among rich backers who want radical free-market policies, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests populists of any stripe tend to fare well when faced with real-world challenges (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, over more than a century. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in nations run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand with populist rule,” argue the researchers.

Another intriguing finding from the study, however, is that even with their negative impacts, these leaders are often effective at retaining office, remaining in power for eight years, versus four for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But returning to Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.