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“Exchange, exchange.” Beneath the blazing sun, scores of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country accustomed to holding the greenback.

“The optimal moment for purchasing is now,” states one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds expect a devaluation of the national currency once the election is over. The president has imposed a limit on the peso to control triple-digit price increases and currently it is artificially high and reserves are depleted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and its voters have been susceptible for decades to leftwing populism, such as the powerful Peronist movement, and now the president’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, vowing forceful policies to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are also seen in his ally in the United States, and by the UK politician, who styles himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Until recent months, the president’s strategy – including widespread sell-offs and deep budget reductions – had earned praise from the IMF for contributing to bring inflation in check. This plan shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But investors started to doubt in Milei’s radical project lately following a poor performance in local polls and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far committed few policies in writing except for proposals for large-scale removals, that he later appeared to revise spontaneously. He wants to curb the central bank, perhaps even ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he lately dropped a promise to make large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on public spending cuts.

Labour hopes this position will enable it to depict the populist as intending to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

In truth, research suggests populists of any stripe often perform poorly when confronting real-world challenges (although every populist leader promises something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita tends to be 10% lower in nations run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” contend the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, populists immediately pay the price in elections. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.