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“Dollars, dollars.” Beneath the scorching heat, scores of currency traders are offering American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October congressional elections in a country accustomed to holding the US dollar.

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

Like her, economists from all backgrounds expect a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the peso to control soaring inflation and now it is artificially high and reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly hit by debt defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, such as the influential Peronist movement, and currently Milei’s conservative populism.

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

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to control inflation in check. This plan has something in common with that of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be slain, regardless of the consequences.

But investors began losing confidence in the government’s agenda lately following a shaky result in provincial elections and a series of graft allegations. Solely massive economic support from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to implement public demand despite the establishment’s horror.

The Reform leader has so far committed few policies in writing aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He aims to rein in the central bank, possibly ditching its governor, the incumbent, with scepticism toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of proposing reckless spending, he lately dropped a promise for large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this stance will allow it to portray the populist as planning to reintroduce austerity – an argument the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and reduced rules, yet also emphasizing the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict there between rich backers seeking radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, research indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head is often 10% lower in countries governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, though, is despite their economic costs, populist figures 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 that even when their policies fail, such leaders immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.