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“Dollars, dollars.” Under the blazing sun, dozens of currency traders are offering American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the October 26 congressional elections in a nation long used to holding the US dollar.

“The best time for purchasing is now,” states one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds expect a depreciation of the national currency once the election concludes. President Javier Milei has imposed a cap on the currency to tame triple-digit price increases and now it remains overvalued and reserves are depleted, causing the national economy stagnant as consumers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has frequently been hit by sovereign defaults and economic crises and its voters have been susceptible for decades to left-leaning populist movements, in the form of the powerful Peronism, and now Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful policies to reclaim control of the economy from traditional elites on behalf of the people.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who presents himself as a beer-drinking people’s champion despite being a public school-educated ex-finance professional.

Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation in check. This plan has something in common with the policies of Milei’s idol the former UK prime minister, who also saw rising prices as a monster to be slain, no matter the cost.

However financial markets started to doubt in Milei’s radical project lately following a poor performance in provincial elections and a series of graft allegations. Only massive economic support by the US has averted what looked set to become a major currency crisis.

Contradictions

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

The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, that he later appeared to revise spontaneously. He wants to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with scepticism of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make large tax cuts. His Reform party deputy, the party chairman, said they would concentrate instead on public spending cuts.

The opposition hopes this position will allow it to depict the populist as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting public investment.

An economics professor says there are contradictions within the populist platform, such as it is. “Reform is funded by very wealthy people demanding tax cuts and deregulation, but also emphasizing the complaints of working people and the decline of industrial jobs,” he says. “There is a conflict there among wealthy supporters who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence indicates neither left nor right populists often perform poorly when faced with practical difficulties (although each charismatic individual claims to offer something unique).

Recent research from a leading journal examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often a tenth less in countries 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 researchers.

A further interesting result of the research, though, is despite their economic costs, these leaders tend to be good at retaining office, lasting on average eight years, versus shorter tenures for mainstream politicians.

Put simply, it is not clear whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to “take back control”, their attraction extends past mundane economics.

Yet back in Buenos Aires, regardless of if Milei’s populist project collapses or is sustained by external aid, the Argentine people have already paid a heavy price.