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“Exchange, exchange.” Under the scorching heat, dozens of currency traders are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming before the October 26 congressional elections in a nation long used 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.”

Like her, economists across the spectrum anticipate a depreciation of the national currency once the election is over. President Javier Milei has imposed a cap on the peso to tame soaring inflation and currently it remains overvalued and reserves are depleted, leaving the national economy stagnant as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and its voters have been receptive for decades to left-leaning populist movements, in the form of the powerful Peronist movement, and currently the president’s conservative populism.

Milei epitomizes populist leadership: charismatic, iconoclastic, promising forceful measures to reclaim control of economic management from traditional elites on behalf of ordinary citizens.

These key characteristics are also seen in his political partner to the north, as well as Nigel Farage, who presents himself as a beer-drinking champion of the common man despite being a privately educated former stockbroker.

Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from international lenders for contributing 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.

However financial markets began losing confidence in Milei’s radical project lately following a poor performance in local polls and a series of corruption scandals. Only large-scale economic support by the US has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit several years ago arguably had similar reasoning, 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.

The Reform leader has so far committed few policies to paper except for proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to rein in the central bank, possibly ditching its governor, Andrew Bailey, with distrust of a stodgy establishment as a central element of populist rhetoric.

His fiscal plans seem in flux: wary of being accused of planning a Liz Truss-style splurge, he recently dropped a pledge to make significant tax cuts. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to portray Farage as intending to bring back fiscal tightening – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of boosting public investment.

An economics professor says there exist inconsistencies within the populist platform, as it stands. “The party are bankrolled by very wealthy people demanding tax cuts and deregulation, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There is a conflict there between rich backers seeking radical free-market policies, and this narrative of bringing back British jobs and reindustrialisation.”

Holding on to Power

Realistically, research indicates neither left nor right populists often perform poorly when faced with practical difficulties (although each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, over more than a century. The study revealed typically, over the long term, gross domestic product per head is often 10% lower in nations governed by populist rulers than in similar economies under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” argue the researchers.

A further interesting result from the study, however, is despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, compared with shorter tenures for their more moderate equivalents.

Put simply, it is not clear that even when their policies fail, such leaders face immediate consequences at the ballot box. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.