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“Dollars, dollars.” Beneath the blazing sun, scores of money changers are hawking US dollars on Florida Street, a lively pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to holding the greenback.

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

Like her, economists across the spectrum anticipate a devaluation of the Argentine peso after the election concludes. President Javier Milei has placed a cap on the currency to tame triple-digit price increases and now it remains overvalued and foreign reserves are exhausted, causing the national economy sluggish as buyers opt for cheap imports.

Ideal Conditions

The nation is a very special case. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and currently the president’s conservative populism.

The president epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to wrestle back control of the economy from the establishment for the benefit of the people.

These defining traits are also seen in his ally in the United States, as well as the UK politician, who presents himself as a pint-swilling people’s champion even though he is a public school-educated former stockbroker.

Up until lately, Milei’s approach – including widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to bring inflation under control. The programme shares similarities with the policies of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be slain, regardless of the consequences.

But financial markets started to doubt in the government’s agenda lately following a poor performance in local polls and a series of graft allegations. Solely massive financial intervention by the US has averted what looked set to become a full-blown currency crisis.

Contradictions

The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, Boris Johnson, dismissed concerns about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror.

The Reform leader has so far committed few policies to paper aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to curb the Bank of England, possibly ditching its governor, the incumbent, with distrust toward traditional institutions being a key part of the populist package.

His fiscal plans appear to be unsettled: concerned about being accused of planning a Liz Truss-style splurge, he recently abandoned a pledge to make significant tax cuts. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure.

The opposition hopes this position will enable it to portray Farage as planning to bring back fiscal tightening – an argument the chancellor has emphasized often, comparing it unfavorably to her approach of boosting government spending.

An economics professor notes there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and reduced rules, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he explains. “There is a conflict here among wealthy supporters seeking radical free-market policies, and this narrative of bringing back UK employment and reindustrialisation.”

Holding on to Power

In truth, the evidence suggests populists of any stripe often perform poorly when confronting real-world challenges (though of course each charismatic individual promises distinct solutions).

A recent paper in the American Economic Review examined the outcomes of 51 populist presidents and prime ministers, over more than a century. It found that on average, after 15 years, GDP per capita tends to be 10% lower in countries governed by populist leaders compared to comparable countries under conventional leadership.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions usually occur together under populist governments,” argue the researchers.

A further interesting result from the study, though, is that even with their negative impacts, these leaders tend to be good at holding on to power, lasting on average a considerable time, versus four for their more moderate equivalents.

In other words, it is not clear that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics.

Yet returning to Buenos Aires, whether Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing significant costs.