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“Cambio, cambio.” Under the blazing sun, dozens of money changers are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a country long used to saving in the greenback.

“The optimal moment for purchasing is currently,” says a arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economic experts across the spectrum anticipate a depreciation of the Argentine peso once the election concludes. President Javier Milei has placed a cap on the peso to tame triple-digit inflation and currently it is overvalued and foreign reserves are depleted, leaving the national economy sluggish as consumers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronism, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to reclaim command of economic management from the establishment on behalf of ordinary citizens.

These key characteristics are also seen in his ally in the United States, 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.

Until recent months, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for helping to control price rises in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw inflation as a dragon to be defeated, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda in recent months following a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support by the US has prevented what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to enact public demand despite the establishment’s horror.

The Reform leader has so far outlined limited plans to paper except for proposals for mass deportations, that he later seemed to adjust on the hoof. He aims to curb the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions being a key part of the populist package.

His tax and spending policies appear to be in flux: wary of facing criticism for planning reckless spending, he recently abandoned a promise to make large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as planning to bring back austerity – a point the chancellor has made repeatedly, contrasting it with her approach of boosting government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers demanding lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he explains. “There’s a tension here between wealthy supporters who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe tend to fare well when confronting real-world challenges (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in nations governed by populist rulers compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually occur together with populist rule,” contend the paper’s authors.

A further interesting result of the research, though, is that despite their economic costs, these leaders tend to be good at retaining office, lasting on average a considerable time, versus four for mainstream politicians.

Put simply, it is not clear that even when their plans crash, populists face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.