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“Exchange, exchange.” Under the scorching heat, scores of currency traders are selling US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to saving in the US dollar.

“The best time to buy is now,” says one arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Similar to her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso once the election concludes. President Javier Milei has imposed a cap on the peso to control soaring inflation and now it is artificially high and reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods.

Ideal Conditions

Argentina represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, unconventional, vowing forceful measures to reclaim command of the economy from the establishment for the benefit of the people.

These key characteristics are also seen in his ally to the north, as well as Nigel Farage, who styles himself as a beer-drinking champion of the common man despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving extensive privatisations and severe public spending cuts – had won plaudits from the IMF for contributing 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 rising prices as a dragon to be slain, regardless of the consequences.

But investors began losing confidence in Milei’s radical project lately following a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has prevented what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, swept away concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans in writing except for a call for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition aims this stance will allow it to portray the populist as planning to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, such as it is. “Reform are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in countries governed by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, Argentina’s citizens have already paid a heavy price.