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“Cambio, cambio.” Under the blazing sun, scores of money changers are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation long used to holding the greenback.

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

Similar to her, economic experts from all backgrounds expect a depreciation of the Argentine peso once the election concludes. President Javier Milei has imposed a limit on the currency to control triple-digit price increases and now it remains artificially high and reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has frequently been racked by sovereign defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronism, and now the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful measures to reclaim control of the economy from the establishment on behalf of the people.

These key characteristics are shared by his political partner to the north, as well as the UK politician, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to control price rises under control. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

However 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 from abroad has averted what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper aside from proposals for mass deportations, that he later seemed to adjust on the hoof. He aims to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for proposing reckless spending, he lately abandoned a promise to make large tax cuts. His Reform party deputy, the party chairman, said they would focus instead on reductions in government expenditure.

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

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers demanding tax cuts and reduced rules, but also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, research indicates populists of any stripe tend to fare well when faced with real-world challenges (although every populist leader claims to offer something unique).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in countries governed by populist leaders than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the researchers.

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

Put simply, it is not clear that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, Argentina’s citizens have already paid a heavy price.