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“Exchange, exchange.” Under the blazing sun, scores of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a nation accustomed to holding the US dollar.

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

Like her, economic experts across the spectrum expect a depreciation of the national currency once the voting concludes. President Javier Milei has imposed a limit on the peso to control triple-digit inflation and now it remains artificially high and foreign reserves are exhausted, causing the national economy stagnant as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been hit by sovereign defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the influential Peronist movement, and currently the president’s rightwing version.

The president epitomizes populist leadership: captivating, iconoclastic, promising muscular measures to reclaim control of the economy from traditional elites for the benefit of the people.

These key characteristics are shared by his ally to the north, as well as the UK politician, who styles himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and deep public spending cuts – had won plaudits from international lenders for contributing to control price rises in check. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However investors started to doubt in the government’s agenda in recent months after a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has averted what seemed destined to be a major currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, swept away doubts about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper except for a call for mass deportations, which he subsequently appeared to revise spontaneously. He wants to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem unsettled: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a promise for large tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict the populist as intending to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

Jo Michell says there are contradictions in Farage’s economic programme, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research suggests neither left nor right populists tend to fare well when faced with real-world challenges (although every populist leader claims to offer distinct solutions).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, gross domestic product per head is often 10% lower in nations run by populist leaders than in similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, versus four for mainstream politicians.

Put simply, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past 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 have already paid a heavy price.