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“Dollars, dollars.” Beneath the scorching heat, dozens of money changers are selling US dollars on Florida Street, a lively 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 saving in the US dollar.

“The optimal moment to buy is now,” states a arbolito, refusing to provide her name. “[The dollar] dropped a little but it’s deceptive – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso after the voting is over. The president has imposed a limit on the currency to control soaring price increases and now it is artificially high and reserves are depleted, leaving the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. Argentina has frequently been racked by sovereign defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, such as the influential Peronism, and now Milei’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, vowing muscular policies to reclaim command of the economy from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner to the north, and by Nigel Farage, who styles himself as a pint-swilling champion of the common man despite being a public school-educated ex-finance professional.

Until recent months, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for helping to bring inflation under control. This plan shares similarities with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon to be defeated, regardless of the consequences.

However financial markets began losing confidence in the government’s agenda lately after a shaky result in provincial elections and multiple graft allegations. Only large-scale financial intervention from abroad has prevented what seemed destined to be a full-blown monetary collapse.

Inconsistencies

The 2016 referendum in 2016 arguably had similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement public demand despite elite opposition.

The Reform leader has so far outlined limited plans in writing aside from a call for mass deportations, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem in flux: concerned about being accused of proposing reckless spending, he lately dropped a promise for significant tax reductions. His Reform party deputy, the party chairman, said they would concentrate instead on reductions in government expenditure.

Labour aims this stance will enable it to portray the populist as intending to reintroduce fiscal tightening – an argument the chancellor has emphasized often, contrasting it with her approach of increasing public investment.

An economics professor notes there exist inconsistencies within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, yet also talking a lot about the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there between wealthy supporters seeking radical free-market policies, and this story of restoring British jobs and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe tend to fare well when confronting practical difficulties (although every populist leader claims to offer something unique).

A recent paper in the American Economic Review analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, gross domestic product per head is often 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Economic disintegration, weakening economic fundamentals and the decay of governance usually go hand in hand under populist governments,” contend the paper’s authors.

A further interesting result from the study, though, is that despite their economic costs, these leaders are often effective at retaining office, lasting on average eight years, compared with four for mainstream politicians.

In other words, it remains uncertain that even when their plans crash, populists face immediate consequences at the ballot box. Similar to pledges made to regain sovereignty, their appeal extends past mundane economics.

But returning to Buenos Aires, whether the government’s agenda fails or is sustained by external aid, the Argentine people are already bearing a heavy price.