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“Exchange, exchange.” Under the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to saving in the US dollar.

“The best time for purchasing is currently,” states one arbolito, declining to give her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds expect a depreciation of the Argentine peso once the election concludes. The president has imposed a cap on the currency to control triple-digit inflation and now it is artificially high and foreign reserves are depleted, causing the national economy stagnant as buyers opt for cheap imports.

Fertile Ground

The nation is a very special case. The country has been repeatedly hit by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and now Milei’s conservative populism.

Milei is a textbook populist: charismatic, unconventional, vowing muscular policies to wrestle back command of economic management from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – involving extensive privatisations and deep budget reductions – had won plaudits from international lenders for contributing to control price rises in check. This plan shares similarities with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda in recent months after a shaky result in provincial elections and multiple corruption scandals. Only large-scale economic support from abroad has averted what looked set to become a full-blown monetary collapse.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the Bank of England, perhaps even ditching its governor, Andrew Bailey, with distrust toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning reckless spending, he recently abandoned a promise to make significant tax reductions. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts.

Labour hopes this stance will allow it to depict the populist as planning to bring back austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell notes there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the complaints of ordinary workers and the decline of industrial jobs,” he explains. “There’s a tension here among rich backers who want Thatcherism on steroids, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, research indicates neither left nor right populists tend to fare well when confronting practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper 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 tends to be 10% lower in nations run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” argue the paper’s authors.

A further interesting result from the study, however, is despite their economic costs, populist figures tend to be good at holding on to power, remaining in power for a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it remains uncertain whether even if their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to regain sovereignty, their attraction extends past mundane economics.

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