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“Dollars, dollars.” Beneath the blazing sun, dozens of money changers are hawking American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a country long used to saving in the greenback.

“The best time for purchasing is now,” says one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it is a fake-out – it will rebound.”

Like her, economists across the spectrum anticipate a depreciation of the Argentine peso once the election is over. President Javier Milei has placed a cap on the peso to tame soaring inflation and now it remains artificially high and foreign reserves are depleted, causing Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s rightwing version.

Milei epitomizes populist leadership: charismatic, iconoclastic, vowing forceful measures to reclaim command of the economy from traditional elites on behalf of ordinary citizens.

These defining traits are shared by his political partner in the United States, as well as Nigel Farage, who styles himself as a beer-drinking people’s champion even though he is a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep public spending cuts – had won plaudits from the IMF for contributing to bring inflation in check. This plan has something in common with that of Milei’s idol Margaret Thatcher, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

However investors began losing confidence in Milei’s radical project in recent months after a poor performance in provincial elections and multiple corruption scandals. Solely massive financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Inconsistencies

The vote for Brexit in 2016 arguably had some of the same logic, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions as a central element of populist rhetoric.

His fiscal plans seem unsettled: concerned about facing criticism for proposing a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to portray the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell notes there exist inconsistencies in Farage’s economic programme, such as it is. “Reform are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he says. “There is a conflict there between rich backers who want radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises something unique).

Recent research from a leading journal 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 leaders than in similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

A further interesting result of the research, though, is that even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, such leaders face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

Yet returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.