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“Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are offering American currency along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country accustomed to holding the greenback.

“The optimal moment to buy is currently,” says one arbolito, declining to give her identity. “[The dollar] went down slightly but it’s deceptive – it will rebound.”

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 peso to tame soaring inflation and now it is overvalued and reserves are exhausted, leaving Argentina’s economy sluggish as buyers turn to low-cost foreign goods.

Ideal Conditions

The nation represents a unique situation. Argentina has been repeatedly hit 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.

The president is a textbook populist: captivating, iconoclastic, vowing muscular policies to reclaim control of economic management from the establishment for the benefit of ordinary citizens.

These key characteristics are also seen in his political partner in the United States, as well as the UK politician, who styles himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, the president’s strategy – involving widespread sell-offs and severe public spending cuts – had earned praise from the IMF for helping to control inflation in check. The programme has something in common with the policies of Milei’s idol Margaret Thatcher, who also saw inflation as a monster to be slain, no matter the cost.

But investors began losing confidence in Milei’s radical project lately following a poor performance in local polls and multiple graft allegations. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown currency crisis.

Contradictions

The 2016 referendum in 2016 likely contained similar reasoning, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to implement public demand in the face of 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 on the hoof. He wants to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans seem in flux: wary of being accused of proposing reckless spending, he recently abandoned a pledge to make large tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on public spending cuts.

The opposition hopes this stance will allow it to depict Farage as intending to reintroduce fiscal tightening – an argument Rachel Reeves has made repeatedly, comparing it unfavorably to her approach of increasing government spending.

Jo Michell says there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people demanding lower taxes and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict here among rich backers who want Thatcherism on steroids, and this narrative of restoring British jobs and industrial revival.”

Holding on to Power

Realistically, research suggests populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader claims to offer distinct solutions).

A recent paper in the American Economic Review examined the outcomes of dozens of populist leaders, from 1900 to 2020. It found that on average, over the long term, GDP per capita is often a tenth less in countries governed by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors.

Another intriguing finding from the study, however, is even with their negative impacts, these leaders tend to be good at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents.

In other words, it remains uncertain whether even if their plans crash, populists immediately pay the price at the ballot box. Similar to pledges made to regain sovereignty, their appeal reaches beyond everyday financial matters.

But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.