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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are offering US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the 26 October midterm elections in a nation accustomed to holding the US dollar.

“The optimal moment for purchasing is now,” states one arbolito, declining to give her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a depreciation of the national currency once the voting is over. President Javier Milei has imposed a limit on the peso to control soaring inflation and now it remains artificially high and foreign reserves are depleted, leaving Argentina’s economy stagnant as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, promising forceful measures to reclaim command of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his ally in the United States, and by Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and severe public spending cuts – had earned praise from the IMF for contributing to control inflation in check. This plan 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, no matter the cost.

But financial markets started to doubt in the government’s agenda in recent months following a shaky result in provincial elections and a series of graft allegations. Solely massive financial intervention from abroad has prevented what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader to date committed few policies in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be in flux: concerned about being accused of proposing a Liz Truss-style splurge, he recently dropped a pledge for significant tax reductions. His second-in-command, Richard Tice, stated they would focus instead on public spending cuts.

The opposition hopes this position will allow it to depict the populist as intending to reintroduce austerity – a point the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by affluent backers calling for tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict here among rich backers seeking Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when faced with real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper from a leading journal examined the performance of 51 populist presidents and prime ministers, over more than a century. It found typically, after 15 years, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to comparable countries with more mainstream regimes.

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

Another intriguing finding of the research, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average eight years, compared with four for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, populists immediately pay the price in elections. Similar to pledges made to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, the Argentine people are already bearing a heavy price.