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“Dollars, dollars.” Beneath the blazing sun, scores of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 congressional elections in a nation long used to holding the greenback.

“The optimal moment to buy is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency after the voting concludes. President Javier Milei has imposed a cap on the peso to tame triple-digit inflation and currently it remains artificially high and foreign reserves are exhausted, leaving the national economy stagnant as consumers opt for cheap imports.

Ideal Conditions

Argentina is a very special case. The country has been repeatedly racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the influential Peronism, and now the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising forceful policies to reclaim command of the economy from traditional elites for the benefit of the people.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe public spending cuts – had earned praise from international lenders for contributing to control price rises in check. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project in recent months following a poor performance in local polls and multiple graft allegations. Solely massive economic support by the US has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, Boris Johnson, dismissed concerns regarding fiscal impacts with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader to date committed few policies to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the central bank, possibly ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he recently dropped a pledge for significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

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

An economics professor notes there exist inconsistencies in Farage’s economic programme, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, research suggests neither left nor right populists often perform poorly when faced with real-world challenges (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, GDP per capita tends to be a tenth less in countries governed by populist leaders than in similar economies under conventional leadership.

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

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

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 attraction reaches beyond everyday financial matters.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.