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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to saving in the US dollar.

“The optimal moment for purchasing is currently,” says one arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has imposed a limit on the peso to tame soaring price increases and currently it is artificially high and reserves are depleted, leaving Argentina’s economy stagnant as buyers opt for cheap imports.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by debt defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, vowing muscular policies to reclaim command of the economy from the establishment on behalf of the people.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for helping to control inflation in check. The programme shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, no matter the cost.

However investors started to doubt in the government’s agenda lately after a poor performance in local polls and multiple graft allegations. Solely large-scale financial intervention from abroad has prevented what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact public demand despite the establishment’s horror.

The Reform leader to date committed few policies to paper aside from a call for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His tax and spending policies seem unsettled: concerned about being accused of planning a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this position will enable it to portray the populist as planning to bring back austerity – an argument Rachel Reeves has emphasized often, contrasting it with her approach of boosting public investment.

Jo Michell notes there are contradictions in Farage’s economic programme, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension here among rich backers who want Thatcherism on steroids, and this story of restoring British jobs and industrial revival.”

Holding on to Power

In truth, the evidence indicates neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer distinct solutions).

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

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together under populist governments,” contend the researchers.

A further interesting result from the study, though, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

Yet back in Buenos Aires, whether the government’s agenda fails or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.