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“Cambio, cambio.” Under the blazing sun, scores of currency traders are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a nation accustomed to holding 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 will rebound.”

Similar to her, economists from all backgrounds expect a devaluation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the peso to control triple-digit inflation and now it is overvalued and reserves are exhausted, leaving the national economy stagnant as consumers opt for cheap imports.

Fertile Ground

The nation represents a unique situation. Argentina has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s conservative populism.

The president epitomizes populist leadership: charismatic, unconventional, vowing muscular policies to wrestle back control of the economy from traditional elites for the benefit of the people.

These defining traits are also seen in his ally 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.

Until recent months, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to control inflation in check. The programme shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project lately after a poor performance in local polls and multiple graft allegations. Solely massive financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

Labour aims this stance will enable it to depict Farage as intending to bring back austerity – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people calling for tax cuts and deregulation, but also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here among wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research indicates neither left nor right populists tend to fare well when faced with real-world challenges (though of course each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the performance of dozens of populist leaders, 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 run by populist rulers than in similar economies under conventional leadership.

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

Another intriguing finding from the study, however, is even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing significant costs.