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“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the 26 October congressional elections in a nation long used to saving in the greenback.

“The optimal moment to buy is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists from all backgrounds anticipate a devaluation of the Argentine peso once the election is over. The president has imposed a limit on the currency to tame soaring price increases and now it remains overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

Argentina is a very special case. Argentina has frequently been racked by debt defaults and financial turmoil and its voters have been susceptible for decades to left-leaning populist movements, in the form of the influential Peronism, and now Milei’s rightwing version.

The president is a textbook populist: charismatic, unconventional, vowing muscular measures to reclaim control of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his ally to the north, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a public school-educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to control inflation in check. This plan shares similarities with that of his political hero Margaret Thatcher, who similarly viewed inflation as a dragon to be defeated, regardless of the consequences.

But investors began losing confidence in Milei’s radical project in recent months following a poor performance in local polls and multiple graft allegations. Only massive economic support by the US has averted what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum several years ago likely contained similar reasoning, and its leader, Boris Johnson, dismissed doubts regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He wants to curb the Bank of England, perhaps even replacing its head, the incumbent, with scepticism toward traditional institutions being a key part of populist rhetoric.

His tax and spending policies seem in flux: wary of being accused of proposing a Liz Truss-style splurge, he recently abandoned a pledge to make large tax cuts. His second-in-command, the party chairman, stated they would focus instead on reductions in government expenditure.

The opposition aims this stance will enable it to depict the populist as intending to bring back austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her strategy of increasing public investment.

Jo Michell notes there exist inconsistencies within the populist platform, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, but also talking a lot about the complaints of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and reindustrialisation.”

Maintaining Control

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

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita tends to be 10% lower in countries run by populist leaders compared to similar economies under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together with populist rule,” contend the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, populist figures are often effective at retaining office, remaining in power for eight years, compared with four for mainstream politicians.

In other words, it remains uncertain that even when their policies fail, such leaders immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people have already paid a heavy price.