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

“The optimal moment to buy is now,” states one arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Like her, economists across the spectrum expect a depreciation of the national currency once the election concludes. President Javier Milei has imposed a cap on the currency to tame soaring price increases and currently it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been hit by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the influential Peronist movement, and currently Milei’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful policies to reclaim command of the economy from the establishment on behalf of the people.

These defining traits are also seen in his ally in the United States, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a privately educated ex-finance professional.

Until recent months, the president’s strategy – including extensive privatisations and severe public spending cuts – had earned praise from international lenders for helping to bring price rises under control. This plan has something in common with that of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be slain, no matter the cost.

However investors started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple graft allegations. Solely large-scale economic support from abroad has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts 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 proposals for mass deportations, that he later appeared to revise on the hoof. He aims to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be in flux: concerned about facing criticism for planning reckless spending, he lately abandoned a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this position will allow it to portray the populist as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her approach of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, such as it is. “The party are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also talking a lot about the complaints of working people and the loss of industrial jobs,” he says. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (although every populist leader claims to offer distinct solutions).

A recent paper from a leading journal examined 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 compared to similar economies with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, however, is despite their economic costs, these leaders are often effective at retaining office, remaining in power for a considerable time, versus four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But back in Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.