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

“The optimal moment to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] went down a little but it is a fake-out – it will rebound.”

Similar to her, economic experts from all backgrounds expect a devaluation of the Argentine peso once the election is over. The president has placed a cap on the peso to tame soaring inflation and currently it is overvalued and reserves are exhausted, causing the national economy sluggish as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and economic crises and its voters have been susceptible over the years to left-leaning populist movements, such as the influential Peronism, and currently Milei’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful policies to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as the UK politician, who styles himself as a pint-swilling champion of the common man even though he is 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 inflation in check. This plan shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, no matter the cost.

However investors began losing confidence in Milei’s radical project lately following a shaky result in provincial elections and multiple graft allegations. Only massive financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Contradictions

The vote for Brexit several years ago arguably had some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with a bullish determination to implement public demand in the face of elite opposition.

Farage has so far committed few policies to paper aside from proposals for mass deportations, which he subsequently seemed to adjust spontaneously. He aims to curb the Bank of England, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of proposing a Liz Truss-style splurge, he lately abandoned a promise to make large tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this position will enable it to portray the populist as intending to bring back fiscal tightening – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and reduced rules, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there among rich backers who want Thatcherism on steroids, and this story of bringing back UK employment and industrial revival.”

Maintaining Control

Realistically, research indicates neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the performance of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, gross domestic product per head tends to be 10% lower in nations run by populist leaders than in comparable countries with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, though, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for eight years, versus four for their more moderate equivalents.

Put simply, it is not clear whether even if their policies fail, populists immediately pay the price in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet back in Buenos Aires, regardless of if the government’s agenda collapses or is kept on life support by external aid, Argentina’s citizens have already paid a heavy price.