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“Dollars, dollars.” Under the blazing sun, dozens of currency traders are offering US dollars on Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the 26 October congressional elections in a country long used to holding the greenback.

“The optimal moment to buy is currently,” states a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the national currency once the election concludes. President Javier Milei has imposed a cap on the peso to control soaring inflation and now it remains overvalued and reserves are exhausted, causing the national economy stagnant as consumers turn to cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, such as the influential Peronist movement, and now Milei’s rightwing version.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful policies to wrestle back control of the economy from the establishment on behalf of the people.

These defining traits are also seen in his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Until recent months, Milei’s approach – including extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring price rises in check. This plan has something in common with that of his political hero the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets started to doubt in Milei’s radical project lately following a poor performance in local polls and a series of corruption scandals. Solely large-scale economic support by the US has prevented what looked set to become a full-blown currency crisis.

Contradictions

The vote for Brexit several years ago arguably had similar reasoning, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to enact the “will of the people” despite the establishment’s horror.

Farage has so far outlined limited plans in writing aside from proposals for mass deportations, that he later appeared to revise spontaneously. He aims to rein in the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His tax and spending policies appear to be in flux: concerned about being accused of proposing reckless spending, he recently abandoned a pledge for significant tax cuts. His Reform party deputy, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray Farage as intending to reintroduce austerity – a point Rachel Reeves has emphasized often, contrasting it with her approach of boosting public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers demanding lower taxes and deregulation, but also talking a lot about the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension there between rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (although each charismatic individual claims to offer something unique).

Recent research in the American Economic Review analysed the performance of dozens of populist leaders, from 1900 to 2020. It found typically, over the long term, GDP per capita tends to be a tenth less in nations run by populist leaders than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the researchers.

Another intriguing finding from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, versus shorter tenures for mainstream politicians.

In other words, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their attraction extends past everyday financial matters.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained by external aid, Argentina’s citizens have already paid significant costs.