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“Dollars, dollars.” Beneath the scorching heat, scores of money changers are selling US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the October 26 midterm elections in a country long used to holding the US dollar.

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

Similar to her, economic experts across the spectrum expect a depreciation of the Argentine peso after the election is over. The president has imposed a limit on the currency to tame soaring inflation and now it remains overvalued and reserves are exhausted, leaving the national economy stagnant as consumers opt for low-cost foreign goods.

Ideal Conditions

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, such as the powerful Peronism, and currently the president’s conservative populism.

Milei is a textbook populist: charismatic, iconoclastic, promising forceful measures to wrestle back command of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his political partner in the United States, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a privately educated ex-finance professional.

Until recent months, Milei’s approach – involving widespread sell-offs and severe budget reductions – had won plaudits from international lenders for contributing to control inflation under control. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

However financial markets started to doubt in the government’s agenda in recent months following a poor performance in local polls and a series of graft allegations. Solely massive economic support by the US has averted what looked set to become a major monetary collapse.

Inconsistencies

The vote for Brexit several years ago likely contained similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He aims to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans appear to be in flux: wary of facing criticism for planning reckless spending, he lately dropped a promise for large tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

Labour hopes this position will allow it to portray Farage as planning to bring back fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “Reform are bankrolled by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the complaints of ordinary workers and the loss of industrial jobs,” he says. “There’s a tension here among rich backers seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Holding on to Power

Realistically, research indicates populists of any stripe often perform poorly when confronting practical difficulties (though of course every populist leader promises something unique).

Recent research in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often 10% lower in countries run by populist leaders than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the decay of governance typically occur together with populist rule,” contend the paper’s authors.

A further interesting result of the research, however, is even with their negative impacts, these leaders are often effective at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders face immediate consequences in elections. 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 are already bearing significant costs.