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“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are selling American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a nation long used to holding the greenback.

“The best time for purchasing is now,” states a arbolito, refusing to provide her name. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economists across the spectrum expect a devaluation of the national currency after the voting concludes. President Javier Milei has placed a cap on the currency to tame soaring price increases and currently it is overvalued and reserves are depleted, causing the national economy stagnant as buyers turn to cheap imports.

Fertile Ground

Argentina is a very special case. The country has frequently been racked by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, such as the powerful Peronist movement, and now the president’s rightwing version.

The president epitomizes populist leadership: charismatic, iconoclastic, vowing muscular policies to reclaim control of economic management from the establishment for the benefit of the people.

These defining traits are also seen in his political partner to the north, as well as the UK politician, who styles himself as a beer-drinking people’s champion even though he is a public school-educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and severe budget reductions – had earned praise from the IMF for contributing to bring inflation in check. This plan has something in common with that of his political hero the former UK prime minister, who similarly viewed inflation as a monster to be defeated, no matter the cost.

However financial markets began losing confidence in the government’s agenda lately after a poor performance in provincial elections and a series of graft allegations. Solely massive economic support by the US has averted what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had some of the same logic, and its leader, Boris Johnson, swept away concerns regarding fiscal impacts with confident resolve to implement the “will of the people” in the face of the establishment’s horror.

Farage has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he lately abandoned a promise for significant tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition hopes 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 increasing public investment.

An economics professor notes there exist inconsistencies 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 says. “There’s a tension here between wealthy supporters who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates populists of any stripe often perform poorly when confronting practical difficulties (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita tends to be a tenth less in nations run by populist leaders compared to comparable countries with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” argue the paper’s authors.

Another intriguing finding from the study, though, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

But back in Buenos Aires, whether the government’s agenda fails or is kept on life support by external aid, the Argentine people have already paid significant costs.