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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling US dollars along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving before the 26 October congressional elections in a nation long used to holding the greenback.

“The best time for purchasing is now,” states one arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists across the spectrum expect a devaluation of the Argentine peso after the election is over. President Javier Milei has placed a limit on the currency to tame soaring inflation and now it remains overvalued and reserves are depleted, leaving Argentina’s economy sluggish as consumers opt for low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by debt defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently the president’s rightwing version.

Milei is a textbook populist: charismatic, iconoclastic, vowing forceful measures to reclaim command of the economy from the establishment on behalf of ordinary citizens.

These key characteristics are shared by his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man even though he is a public school-educated former stockbroker.

Until recent months, the president’s strategy – involving widespread sell-offs and severe budget reductions – had earned praise from international lenders for helping to bring inflation in check. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost.

But financial markets began losing confidence in Milei’s radical project in recent months following a poor performance in provincial elections and multiple corruption scandals. Only large-scale financial intervention from abroad has prevented what seemed destined to be a major monetary collapse.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away doubts about economic detail with a bullish determination to implement the “will of the people” despite the establishment’s horror.

The Reform leader to date committed few policies to paper except for a call for large-scale removals, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of populist rhetoric.

His tax and spending policies appear to be unsettled: wary of being accused of planning reckless spending, he lately dropped a pledge for large tax reductions. His second-in-command, Richard Tice, stated they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict Farage as intending to bring back fiscal tightening – a point the chancellor has made repeatedly, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there are contradictions in Farage’s economic programme, such as it is. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, but also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There’s a tension there between wealthy supporters who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research indicates populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual claims to offer distinct solutions).

Recent research in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders than in similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together under populist governments,” argue the paper’s authors.

A further interesting result of the research, however, is that despite their economic costs, populist figures tend to be good at retaining office, remaining in power for eight years, compared with 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. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.