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“Exchange, exchange.” Under the blazing sun, scores of currency traders are hawking US dollars on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a country accustomed to holding the greenback.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Like her, economic experts across the spectrum anticipate a devaluation of the Argentine peso once the election concludes. The president has placed a cap on the peso to control triple-digit inflation and now it remains artificially high and reserves are depleted, leaving the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly hit by sovereign defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, such as the influential Peronist movement, and currently the president’s rightwing version.

The president is a textbook populist: captivating, unconventional, promising muscular policies to wrestle back command of economic management from the establishment on behalf of the people.

These defining traits are also seen in his ally to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man despite being a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. This plan shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

But investors began losing confidence in the government’s agenda in recent months after a shaky result in local polls and a series of graft allegations. Solely large-scale financial intervention from abroad has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained some of the same logic, and its leader, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date committed few policies to paper aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of populist rhetoric.

His tax and spending policies seem in flux: wary of facing criticism for planning a Liz Truss-style splurge, he recently dropped a pledge for significant tax cuts. His Reform party deputy, the party chairman, said they would focus instead on public spending cuts.

The opposition aims this position will enable it to portray the populist as intending to reintroduce austerity – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

Jo Michell notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the complaints of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension here among rich backers seeking radical free-market policies, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

In truth, research suggests populists of any stripe tend to fare well when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper 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, gross domestic product per head tends to be a tenth less in countries run by populist rulers compared to similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance usually occur together under populist governments,” contend the researchers.

A further interesting result from the study, however, is that even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, compared with shorter tenures for mainstream politicians.

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 appeal reaches beyond everyday financial matters.

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