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“Dollars, dollars.” Under the scorching heat, dozens of money changers are selling American currency along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“small trees”), their business is booming before the October 26 midterm elections in a country long used to holding the US dollar.

“The optimal moment for purchasing is now,” says one arbolito, declining to give her identity. “[The dollar] went down slightly but it is a fake-out – it’ll rise again.”

Like her, economists across the spectrum expect a devaluation of the Argentine peso once the election is over. The president has imposed a cap on the peso to control soaring inflation and currently it is artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as buyers turn to low-cost foreign goods.

Fertile Ground

Argentina represents a unique situation. The country has frequently been racked by debt defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the powerful Peronist movement, and now Milei’s rightwing version.

Milei is a textbook populist: captivating, iconoclastic, vowing forceful measures to wrestle back control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are shared by his political partner in the United States, and by Nigel Farage, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – including extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to control price rises in check. The programme shares similarities with the policies of Milei’s idol Margaret Thatcher, who also saw rising prices as a monster to be slain, regardless of the consequences.

But investors started to doubt in the government’s agenda lately following a poor performance in provincial elections and multiple corruption scandals. Only large-scale financial intervention from abroad has prevented what looked set to become a major monetary collapse.

Contradictions

The vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, dismissed doubts about economic detail with a bullish determination to implement the “will of the people” in the face of elite opposition.

The Reform leader to date outlined limited plans to paper aside from a call for large-scale removals, that he later seemed to adjust spontaneously. He wants to rein in the central bank, perhaps even ditching its governor, the incumbent, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: wary of being accused of planning reckless spending, he lately dropped a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure.

The opposition aims this stance will allow it to depict the populist as planning to reintroduce austerity – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people calling for lower taxes and reduced rules, yet also emphasizing the grievances of ordinary workers and the loss of industrial jobs,” he explains. “There’s a tension there among wealthy supporters who want radical free-market policies, and this story of restoring UK employment and reindustrialisation.”

Maintaining Control

Realistically, research suggests neither left nor right populists often perform poorly when confronting practical difficulties (although each charismatic individual promises something unique).

Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, after 15 years, GDP per capita is often 10% lower in countries governed by populist leaders than in similar economies under conventional leadership.

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

Another intriguing finding from the study, though, is even with their negative impacts, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for mainstream politicians.

Put simply, it is not clear whether even if their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their appeal reaches beyond everyday financial matters.

Yet returning to Buenos Aires, regardless of if the government’s agenda fails or is sustained by external aid, the Argentine people have already paid significant costs.