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“Exchange, exchange.” Beneath the blazing sun, dozens of money changers are selling American currency on Florida Street, a bustling shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the October 26 midterm elections in a nation accustomed to holding the US dollar.

“The best time to buy is currently,” says a arbolito, declining to give her name. “[The dollar] dropped a little but it is a fake-out – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a devaluation of the Argentine peso after the voting concludes. President Javier Milei has placed a limit on the peso to control soaring inflation and now it remains artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to cheap imports.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and financial turmoil and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronist movement, and now the president’s rightwing version.

The president is a textbook populist: charismatic, unconventional, promising muscular measures to wrestle back control of economic management from traditional elites for the benefit of the people.

These defining traits are also seen in his political partner in the United States, and by the UK politician, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, the president’s strategy – including widespread sell-offs and severe public spending cuts – had won plaudits from international lenders for contributing to control inflation under control. The programme has something in common with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost.

But financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Only massive economic support from abroad has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail with a bullish determination to enact the “will of the people” despite elite opposition.

The Reform leader to date committed few policies in writing except for proposals for mass deportations, which he subsequently seemed to adjust on the hoof. He aims 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 in flux: wary of facing criticism for planning reckless spending, he recently dropped a promise for significant tax reductions. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

The opposition aims this stance will enable it to depict the populist as intending to bring back austerity – an argument the chancellor has emphasized often, contrasting it with her strategy of increasing public investment.

Jo Michell says there are contradictions within the populist platform, as it stands. “The party is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of restoring UK employment and industrial revival.”

Maintaining Control

In truth, the evidence indicates populists of any stripe tend to fare well when faced with real-world challenges (although every populist leader promises something unique).

A recent paper from a leading journal examined 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 10% lower in nations governed by populist rulers than in comparable countries under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions usually occur together with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is that even with their negative impacts, these leaders tend to be good at retaining office, lasting on average eight years, compared with four for mainstream politicians.

In other words, it is not clear that even when their policies fail, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters.

But back in Buenos Aires, whether the government’s agenda collapses or is kept on life support through foreign assistance, the Argentine people have already paid significant costs.