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“Exchange, exchange.” Under the blazing sun, scores of money changers are offering US dollars on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a nation long used to holding the greenback.

“The optimal moment to buy is currently,” says a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso once the election is over. President Javier Milei has imposed a limit on the currency to tame triple-digit price increases and now it is artificially high and reserves are depleted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. Argentina has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s conservative populism.

Milei is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of the economy from traditional elites for the benefit of ordinary citizens.

These key characteristics are shared by his ally 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 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 under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw rising prices as a monster to be defeated, no matter the cost.

However financial markets started to doubt in the government’s agenda lately after a poor performance in provincial elections and multiple corruption scandals. Solely large-scale economic support by the US has averted what looked set to become a major monetary collapse.

Contradictions

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to implement public demand in the face of the establishment’s horror.

The Reform leader has so far outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly ditching its governor, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package.

His tax and spending policies seem in flux: wary of facing criticism for proposing a Liz Truss-style splurge, he recently dropped a promise for large tax reductions. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

The opposition hopes this position will enable it to depict the populist as intending to bring back austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of increasing public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people calling for tax cuts and reduced rules, but also emphasizing the grievances of working people and the decline of industrial jobs,” he explains. “There is a conflict there between rich backers who want radical free-market policies, and this story of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, research indicates populists of any stripe tend to fare well when faced with real-world challenges (although each charismatic individual promises something unique).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found typically, after 15 years, gross domestic product per head is often 10% lower in nations governed by populist rulers compared to comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance typically occur together under populist governments,” contend the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is sustained by external aid, the Argentine people have already paid a heavy price.