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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are hawking American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the 26 October midterm elections in a country long used to holding the US dollar.

“The best time for purchasing is currently,” states a arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economic experts across the spectrum expect a devaluation of the Argentine peso once the election concludes. President Javier Milei has imposed a limit on the currency to control triple-digit price increases and now it is artificially high and reserves are depleted, leaving the national economy stagnant as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been receptive for decades to leftwing populism, in the form of the influential Peronism, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful policies to reclaim control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are shared by his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from the IMF for contributing to bring inflation under control. The programme shares similarities with the policies of his political hero Margaret Thatcher, who similarly viewed inflation as a monster to be slain, no matter the cost.

However investors began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and a series of corruption scandals. Only large-scale financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far outlined limited plans to paper aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to rein in the central bank, perhaps even ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make large tax cuts. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition hopes this stance will enable it to portray the populist as planning to reintroduce austerity – a point Rachel Reeves has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor says there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers calling for lower taxes and reduced rules, but also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he says. “There is a conflict here between wealthy supporters seeking Thatcherism on steroids, and this narrative of bringing back British jobs and industrial revival.”

Holding on to Power

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

Recent research in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head is often 10% lower in countries run by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the decay of governance usually go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, though, is despite their economic costs, populist figures are often effective at retaining office, remaining in power for eight years, compared with four for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their appeal extends past mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, Argentina’s citizens have already paid a heavy price.