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“Dollars, dollars.” Under the scorching heat, scores of currency traders are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to saving in the US dollar.

“The best time to buy is now,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso after the voting concludes. The president has imposed a cap on the peso to tame triple-digit price increases and now it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy sluggish as consumers turn to cheap imports.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently Milei’s conservative populism.

The president is a textbook populist: charismatic, iconoclastic, vowing forceful policies to wrestle back command of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his political partner to the north, and by the UK politician, who presents himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had earned praise from international lenders for contributing to bring price rises under control. 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, no matter the cost.

But investors started to doubt in the government’s agenda in recent months following a poor performance in local polls and multiple corruption scandals. Solely massive economic support by the US has prevented what looked set to become a major currency crisis.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand 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, that he later appeared to revise spontaneously. He wants to curb the Bank of England, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: concerned about facing criticism for planning reckless spending, he lately dropped a pledge for large tax cuts. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will enable it to portray the populist as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people demanding lower taxes and deregulation, but also talking a lot about the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

In truth, research indicates neither left nor right populists often perform poorly when confronting real-world challenges (though of course each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head tends to be 10% lower in nations governed by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” contend the paper’s authors.

Another intriguing finding of the research, though, is even with their negative impacts, populist figures tend to be good at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people are already bearing a heavy price.