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“Exchange, exchange.” Beneath the scorching heat, scores of currency traders are hawking American currency on Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the October 26 congressional elections in a country accustomed to saving in the US dollar.

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

Similar to her, economists from all backgrounds expect a depreciation of the national currency once the voting is over. President Javier Milei has imposed a limit on the peso to control soaring price increases and currently it is artificially high and foreign reserves are exhausted, leaving the national economy stagnant as buyers opt for cheap imports.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by debt defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the influential Peronism, and currently Milei’s rightwing version.

Milei is a textbook populist: captivating, unconventional, promising forceful measures to wrestle back command of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including widespread sell-offs and severe public spending cuts – had won plaudits from the IMF for helping to bring price rises under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be defeated, regardless of the consequences.

However investors began losing confidence in the government’s agenda lately following a poor performance in local polls and a series of graft allegations. Only large-scale economic support by the US has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum several years ago likely contained similar reasoning, and its leader, the former prime minister, dismissed doubts about economic detail with confident resolve to enact public demand in the face of the establishment’s horror.

Farage to date committed few policies in writing except for proposals for mass deportations, that he later seemed to adjust spontaneously. He aims to rein in the Bank of England, possibly ditching its governor, the incumbent, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: concerned about being accused of proposing reckless spending, he lately dropped a pledge for large tax cuts. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

Labour aims this position will allow it to depict the populist as intending to bring back austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting government spending.

An economics professor says there are contradictions within the populist platform, as it stands. “The party are bankrolled by affluent backers calling for tax cuts and deregulation, yet also emphasizing the grievances of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there between rich backers seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Maintaining Control

Realistically, research indicates populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, over the long term, GDP per capita tends to be 10% lower in nations run by populist leaders compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the researchers.

A further interesting result from the study, however, is that despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, such leaders immediately pay the price in elections. Similar to pledges made to regain sovereignty, their attraction reaches beyond mundane economics.

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