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“Dollars, dollars.” Under the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a country long used to saving in the greenback.

“The optimal moment to buy is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum anticipate a depreciation of the Argentine peso after the voting concludes. President Javier Milei has placed a cap on the peso to tame triple-digit price increases and now it remains overvalued and reserves are exhausted, leaving the national economy sluggish as consumers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the powerful Peronist movement, and currently Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to wrestle back command of economic management from traditional elites on behalf of the people.

These key characteristics are shared by his ally in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to bring inflation in check. This plan 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, no matter the cost.

However investors started to doubt in the government’s agenda lately following a shaky result in provincial elections and a series of graft allegations. Solely large-scale financial intervention from abroad has averted what looked set to become a major currency crisis.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

Farage has so far outlined limited plans in writing except for a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

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

Labour aims this stance will enable it to depict the populist as planning to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “The party is funded by affluent backers calling for tax cuts and reduced rules, but also emphasizing the complaints of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict there among rich backers seeking Thatcherism on steroids, and this story of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

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

Another intriguing finding from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, compared with four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, such leaders immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.