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“Exchange, exchange.” Beneath the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“small trees”), their business is booming ahead of the October 26 congressional elections in a country accustomed to saving in the US dollar.

“The optimal moment to buy 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 from all backgrounds expect a depreciation of the Argentine peso after the election concludes. The president has imposed a limit on the currency to tame soaring price increases and currently it is overvalued and reserves are exhausted, leaving the national economy stagnant as buyers turn to cheap imports.

Fertile Ground

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, in the form of the powerful Peronist movement, and now Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing muscular measures to wrestle back control of the economy from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Until recent months, Milei’s approach – including widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to control inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

But investors started to doubt in Milei’s radical project in recent months after a shaky result in provincial elections and a series of corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, that he later seemed to adjust spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric.

His fiscal plans seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately dropped a promise to make large tax reductions. His second-in-command, the party chairman, said they would concentrate instead on public spending cuts.

Labour hopes this stance will enable it to portray Farage as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting public investment.

An economics professor says there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by affluent backers calling for tax cuts and deregulation, yet also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension there between wealthy supporters who want radical free-market policies, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting real-world challenges (although every populist leader claims to offer distinct solutions).

Recent research from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita tends to be 10% lower in nations governed by populist rulers than in similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the decay of governance typically go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding of the research, though, is even with their negative impacts, populist figures are often effective at holding on to power, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is kept on life support by external aid, the Argentine people have already paid a heavy price.