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“Dollars, dollars.” Beneath the blazing sun, dozens of money changers are offering American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a country long used to saving in the US dollar.

“The best time to buy is currently,” says a arbolito, declining to give her name. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a depreciation of the Argentine peso once the voting concludes. President Javier Milei has imposed a cap on the peso to control triple-digit price increases and currently it is overvalued and foreign reserves are exhausted, causing Argentina’s economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina is a very special case. The country has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and currently the president’s rightwing version.

Milei epitomizes populist leadership: charismatic, unconventional, promising muscular measures to wrestle back control of the economy from the establishment for the benefit of ordinary citizens.

These defining traits are shared by his ally in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to control inflation in check. This plan shares similarities with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

However financial markets began losing confidence in Milei’s radical project lately following a shaky result in local polls and multiple corruption scandals. Solely large-scale economic support by the US has prevented what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader has so far outlined limited plans to paper aside from proposals for mass deportations, which he subsequently appeared to revise spontaneously. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with distrust toward traditional institutions being a key part of populist rhetoric.

His fiscal plans appear to be in flux: wary of being accused of proposing reckless spending, he recently abandoned a promise for significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on public spending cuts.

Labour aims this stance will allow it to depict the populist as intending to bring back fiscal tightening – a point the chancellor has emphasized often, contrasting it with her approach of boosting government spending.

An economics professor notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension here between rich backers seeking radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, the evidence suggests neither left nor right populists often perform poorly when confronting practical difficulties (though of course every populist leader claims to offer distinct solutions).

Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found typically, over the long term, gross domestic product per head is often a tenth less in nations run by populist leaders compared to similar economies with more mainstream regimes.

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

Another intriguing finding of the research, though, is even with their negative impacts, populist figures tend to be good at retaining office, lasting on average eight years, versus shorter tenures for their more moderate equivalents.

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

Yet returning to Buenos Aires, whether Milei’s populist project collapses or is sustained through foreign assistance, the Argentine people are already bearing a heavy price.