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“Dollars, dollars.” Under the scorching heat, dozens of money changers are hawking American currency along Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a country accustomed to holding the greenback.

“The best time to buy is currently,” states 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 from all backgrounds expect a depreciation of the Argentine peso after the voting is over. The president has imposed a limit on the peso to tame soaring inflation and now it remains overvalued and reserves are exhausted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Fertile Ground

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

The president is a textbook populist: charismatic, iconoclastic, vowing forceful policies to reclaim control of the economy 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 public school-educated former stockbroker.

Until recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from international lenders for helping to control inflation in check. The programme has something in common with the policies of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, no matter the cost.

But investors started to doubt in Milei’s radical project in recent months following a shaky result in local polls and multiple corruption scandals. Solely large-scale financial intervention from abroad has averted what seemed destined to be a full-blown currency crisis.

Contradictions

The vote for Brexit in 2016 likely contained some of the same logic, and its leader, Boris Johnson, swept away doubts regarding fiscal impacts with confident resolve to enact public demand in the face of elite opposition.

Farage to date committed few policies in writing aside from proposals for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment as a central element of the populist package.

His tax and spending policies appear to be unsettled: wary of facing criticism for planning a Liz Truss-style splurge, he lately abandoned a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts.

The opposition aims this position will enable it to portray the populist as planning to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of boosting public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people demanding tax cuts and reduced rules, but also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there between wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when confronting practical difficulties (although each charismatic individual claims to offer distinct solutions).

A recent paper from a leading journal examined the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed typically, over the long term, GDP per capita is often 10% lower in countries run by populist rulers than in comparable countries with more mainstream regimes.

“Economic disintegration, decreasing macroeconomic stability and the erosion of institutions usually go hand in hand under populist governments,” contend the researchers.

A further interesting result from the study, though, is that even with their negative impacts, populist figures are often effective at holding on to power, lasting on average a considerable time, versus shorter tenures for their more moderate equivalents.

In other words, it is not clear that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters.

Yet back in Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, the Argentine people have already paid significant costs.