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“Cambio, cambio.” Under the blazing sun, dozens of money changers are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving ahead of the October 26 congressional elections in a nation accustomed to saving in the greenback.

“The optimal moment for purchasing is currently,” says one arbolito, declining to give her name. “[The dollar] dropped slightly but it’s deceptive – it will rebound.”

Similar to her, economists across the spectrum expect a depreciation of the Argentine peso once the election concludes. President Javier Milei has placed a limit on the peso to control triple-digit inflation and currently it remains artificially high and reserves are depleted, causing Argentina’s economy stagnant as consumers turn to cheap imports.

Fertile Ground

Argentina represents a unique situation. The country has been repeatedly racked by sovereign defaults and financial turmoil and the electorate have been susceptible over the years to left-leaning populist movements, such as the influential Peronist movement, and now Milei’s conservative populism.

Milei epitomizes populist leadership: captivating, unconventional, vowing forceful policies to wrestle back control of economic management from the establishment for the benefit of the people.

These key characteristics are also seen in his ally to the north, as well as the UK politician, who styles himself as a beer-drinking champion of the common man even though he is a public school-educated ex-finance professional.

Until recent months, Milei’s approach – including extensive privatisations and deep budget reductions – had won plaudits from international lenders for contributing to bring price rises in check. The programme shares similarities with that of his political hero the former UK prime minister, who also saw rising prices as a monster to be defeated, regardless of the consequences.

However investors started to doubt in Milei’s radical project in recent months following a poor performance in provincial elections and multiple graft allegations. Solely large-scale financial intervention from abroad has prevented what seemed destined to be a major currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed concerns about economic detail with confident resolve to implement the “will of the people” despite the establishment’s horror.

Farage to date committed few policies in writing except for proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with distrust of a stodgy establishment as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for proposing reckless spending, he recently dropped a promise to make significant tax cuts. His second-in-command, Richard Tice, stated they would focus instead on reductions in government expenditure.

Labour hopes this stance will enable it to depict the populist as planning to bring back austerity – a point Rachel Reeves has emphasized often, contrasting it with her strategy of boosting government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party are bankrolled by very wealthy people calling for tax cuts and reduced rules, but also talking a lot about the complaints of working people and the loss of industrial jobs,” he explains. “There’s a tension here among rich backers who want radical free-market policies, and this narrative of bringing back UK employment and industrial revival.”

Maintaining Control

In truth, research indicates neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, over the long term, gross domestic product per head is often a tenth less in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, weakening economic fundamentals and the decay of governance usually go hand in hand with populist rule,” argue the paper’s authors.

A further interesting result from the study, however, is even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, compared with four for mainstream politicians.

Put simply, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal extends past mundane economics.

Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support by external aid, Argentina’s citizens are already bearing a heavy price.