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“Dollars, dollars.” Under the scorching heat, dozens of money changers are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October midterm elections in a nation long used to holding the US dollar.

“The optimal moment to buy is currently,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists across the spectrum anticipate a devaluation of the national currency after the election concludes. The president has placed a cap on the currency to control soaring price increases and currently it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has frequently been hit by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: captivating, iconoclastic, vowing forceful policies to wrestle back control of economic management from traditional elites for the benefit of ordinary citizens.

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from the IMF for helping to control price rises in check. This plan shares similarities with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda lately after a shaky result in provincial elections and multiple corruption scandals. Only large-scale financial intervention by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum several years ago arguably had some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

Farage to date committed few policies to paper aside from a call for large-scale removals, which he subsequently seemed to adjust spontaneously. He wants to rein in the Bank of England, perhaps even replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict the populist as planning to reintroduce austerity – an argument Rachel Reeves has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by very wealthy people demanding tax cuts and reduced rules, but also emphasizing the grievances of working people and the decline in manufacturing employment,” he says. “There’s a tension there between rich backers who want radical free-market policies, and this story of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader promises something unique).

Recent research from a leading journal analysed the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries governed by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together with populist rule,” argue the paper’s authors.

Another intriguing finding of the research, however, is that despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

In other words, it is not clear that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.