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“Cambio, cambio.” Under the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a country accustomed to saving in the greenback.

“The best time to buy is now,” says one arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the national currency after the voting is over. President Javier Milei has placed a limit on the peso to tame triple-digit price increases and now it is overvalued and foreign reserves are exhausted, causing Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has been repeatedly racked by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, such as the influential Peronism, and currently the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, promising forceful policies to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These defining traits are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had earned praise from the IMF for helping to bring price rises in check. The programme has something in common with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

But investors began losing confidence in the government’s agenda lately following a poor performance in local polls and a series of graft allegations. Only large-scale financial intervention by the US has averted what seemed destined to be a major monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand in the face of elite opposition.

The Reform leader to date committed few policies to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans seem unsettled: concerned about being accused of planning reckless spending, he recently dropped a promise for significant tax cuts. His Reform party deputy, the party chairman, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will enable it to portray the populist as intending to bring back fiscal tightening – an argument Rachel Reeves has emphasized often, contrasting it with her strategy of boosting government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the grievances of working people and the decline in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe tend to fare well when faced with practical difficulties (though of course each charismatic individual claims to offer something unique).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita tends to be 10% lower in countries governed by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” argue the paper’s authors.

Another intriguing finding of the research, however, is despite their economic costs, populist figures are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

Put simply, it remains uncertain that even when their policies fail, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

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