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“Exchange, exchange.” Under the blazing sun, scores of money changers are selling US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the greenback.

“The optimal moment for purchasing is currently,” states one arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum anticipate a depreciation of the Argentine peso after the election concludes. The president has placed a cap on the currency to tame soaring inflation and now it is overvalued and reserves are depleted, causing Argentina’s economy sluggish as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has frequently been racked by debt defaults and economic crises and the electorate have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

The president epitomizes populist leadership: charismatic, unconventional, promising forceful policies to wrestle back command of economic management from the establishment for the benefit of ordinary citizens.

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

Up until lately, the president’s strategy – including widespread sell-offs and deep public spending cuts – had earned praise from international lenders for helping to control price rises under control. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a shaky result in local polls and multiple graft allegations. Only massive financial intervention by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, dismissed concerns about economic detail with confident resolve to implement public demand despite the establishment’s horror.

The Reform leader has so far committed few policies to paper except for a call for large-scale removals, that he later appeared to revise spontaneously. He wants to rein in the Bank of England, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies seem in flux: wary of facing criticism for planning reckless spending, he recently dropped a promise to make significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition aims this stance will allow it to depict the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of boosting government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding tax cuts and deregulation, but also emphasizing the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among rich backers seeking radical free-market policies, and this narrative of bringing back British jobs and industrial revival.”

Maintaining Control

Realistically, research suggests populists of any stripe tend to fare well when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often 10% lower in nations run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is that even with their negative impacts, populist figures tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past everyday financial matters.

But back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, Argentina’s citizens are already bearing significant costs.