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“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are offering US dollars along Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to holding the greenback.

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

Like her, economic experts from all backgrounds expect a depreciation of the national currency once the election is over. President Javier Milei has placed a limit on the currency to tame soaring inflation and now it remains artificially high and reserves are exhausted, leaving Argentina’s economy sluggish as consumers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been receptive over the years to leftwing populism, in the form of the powerful Peronist movement, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to reclaim command of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man even though he is a public school-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 helping to control inflation in check. The programme has something in common with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be slain, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately following a shaky result in provincial elections and a series of corruption scandals. Solely large-scale economic support by the US has prevented what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for mass deportations, that he later seemed to adjust on the hoof. He wants to curb the Bank of England, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make large tax reductions. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict Farage as planning to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “Reform is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

In truth, research suggests neither left nor right populists often perform poorly when confronting real-world challenges (although every populist leader claims to offer something unique).

A recent paper from a leading journal analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be a tenth less in countries governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their policies fail, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid significant costs.