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“Exchange, exchange.” Beneath the scorching heat, dozens of currency traders are offering US dollars on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“small trees”), they are thriving before the October 26 midterm elections in a nation accustomed to holding the greenback.

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

Like her, economic experts across the spectrum anticipate a depreciation of the national currency after the voting concludes. The president has placed a cap on the currency to tame soaring price increases and currently it remains overvalued and foreign reserves are depleted, causing the national economy sluggish as consumers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been hit by debt defaults and financial turmoil and its voters have been receptive over the years to left-leaning populist movements, in the form of the influential Peronism, and now the president’s conservative populism.

The president is a textbook populist: captivating, unconventional, vowing forceful measures to reclaim command of economic management from the establishment on behalf of the people.

These defining traits are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a pint-swilling people’s champion despite being a privately educated ex-finance professional.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had won plaudits from the IMF for contributing to bring inflation in check. This plan has something in common with the policies of Milei’s idol Margaret Thatcher, who similarly viewed rising prices as a dragon to be slain, no matter the cost.

But investors started to doubt in Milei’s radical project lately after a poor performance in local polls and a series of graft allegations. Solely large-scale financial intervention by the US has prevented what looked set to become a major currency crisis.

Inconsistencies

The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, swept away doubts about economic detail with a bullish determination to implement public demand in the face of elite opposition.

The Reform leader has so far committed few policies to paper aside from proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He aims to curb the central bank, possibly ditching its governor, Andrew Bailey, with scepticism toward traditional institutions as a central element of the populist package.

His fiscal plans seem unsettled: wary of facing criticism for planning reckless spending, he lately dropped a promise for large tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on public spending cuts.

The opposition hopes this stance will enable it to portray the populist as intending to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her approach of increasing public investment.

An economics professor notes there are contradictions within the populist platform, such as it is. “The party is funded by very wealthy people calling for tax cuts and deregulation, yet also talking a lot about the complaints of working people and the decline in manufacturing employment,” he explains. “There’s a tension here among wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.”

Holding on to Power

Realistically, the evidence suggests populists of any stripe tend to fare well when faced with real-world challenges (although each charismatic individual 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. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in countries run by populist leaders than in comparable countries under conventional leadership.

“Financial decline, weakening economic fundamentals and the erosion of institutions typically occur together with populist rule,” argue the researchers.

A further interesting result from the study, however, is despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, versus four for mainstream politicians.

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

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, the Argentine people have already paid a heavy price.