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“Exchange, exchange.” Under the blazing sun, scores of currency traders are selling US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the US dollar.

“The optimal moment for purchasing is currently,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso after the election is over. The president has imposed a cap on the currency to control soaring inflation and currently it is overvalued and reserves are depleted, leaving Argentina’s economy stagnant as buyers turn to cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been hit by sovereign defaults and economic crises and the electorate 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, iconoclastic, vowing forceful policies to wrestle back control of the economy from the establishment on behalf of the people.

These key characteristics are also seen in his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations 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 monster to be defeated, no matter the cost.

But investors began losing confidence in Milei’s radical project lately after a poor performance in local polls and a series of corruption scandals. Solely massive financial intervention from abroad has prevented what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

Farage has so far committed few policies in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package.

His fiscal plans appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make significant tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict the populist as intending to reintroduce austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers calling for lower taxes and reduced rules, yet also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict here among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

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

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita is often 10% lower in nations governed by populist rulers compared to comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is that even with their negative impacts, populist figures tend to be good at retaining office, lasting on average a considerable time, compared with shorter tenures for mainstream politicians.

Put simply, it is not clear that even when their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, Argentina’s citizens are already bearing significant costs.