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“Dollars, dollars.” Beneath the scorching heat, scores of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to holding the US dollar.

“The best time for purchasing is now,” says a arbolito, declining to give her name. “[The dollar] went down a little but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the national currency once the voting concludes. The president has imposed a limit on the currency to tame triple-digit inflation and currently it remains artificially high and foreign reserves are depleted, causing Argentina’s economy stagnant as buyers opt for cheap imports.

Ideal Conditions

Argentina represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to wrestle back command of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his political partner in the United States, and by the UK politician, who presents himself as a beer-drinking people’s champion despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. This plan shares similarities with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be slain, regardless of the consequences.

But financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of corruption scandals. Solely massive economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for large-scale removals, which he subsequently seemed to adjust on the hoof. He wants to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he lately dropped a pledge for significant tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to portray the populist as planning to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting public investment.

Jo Michell says there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people demanding tax cuts and deregulation, yet also talking a lot about the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict there between wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

In truth, research indicates neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review examined 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 a tenth less in countries governed by populist leaders than in similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at holding on to power, remaining in power for a considerable time, versus four for their more moderate equivalents.

Put simply, it remains uncertain that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to regain sovereignty, their appeal extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, Argentina’s citizens are already bearing significant costs.