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“Exchange, exchange.” Under the blazing sun, scores of currency traders are selling American currency on Florida Street, a bustling pedestrian strip in Buenos Aires. Referred to as arbolitos (“little trees”), they are thriving before the 26 October congressional elections in a country long used to holding the US dollar.

“The optimal moment for purchasing is now,” says a arbolito, declining to give her identity. “[The dollar] dropped a little but it is a fake-out – it will rebound.”

Like her, economists from all backgrounds expect a depreciation of the national currency after the voting is over. The president has imposed a cap on the currency to tame soaring inflation and now it remains artificially high and reserves are depleted, causing the national economy sluggish as buyers opt for low-cost foreign goods.

Ideal Conditions

The nation is a very special case. The country has been repeatedly hit by sovereign defaults and economic crises and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and now the president’s conservative populism.

Milei epitomizes populist leadership: captivating, iconoclastic, promising forceful measures to reclaim command of economic management from the establishment for the benefit of the people.

These key characteristics are shared by his political partner to the north, and by the UK politician, who styles himself as a pint-swilling champion of the common man even though he is a public school-educated ex-finance professional.

Up until lately, the president’s strategy – including extensive privatisations and deep budget reductions – had won plaudits from the IMF for helping to bring price rises under control. This plan has something in common with the policies of his political hero Margaret Thatcher, who also saw inflation as a dragon to be defeated, regardless of the consequences.

However financial markets started to doubt in Milei’s radical project lately after a shaky result in local polls and multiple corruption scandals. Solely massive economic support from abroad has averted what seemed destined to be a full-blown currency crisis.

Inconsistencies

The vote for Brexit in 2016 likely contained similar reasoning, and its figurehead, the former prime minister, swept away doubts regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror.

The Reform leader to date committed few policies to paper aside from proposals for large-scale removals, which he subsequently appeared to revise spontaneously. He aims to curb the Bank of England, possibly replacing its head, Andrew Bailey, with scepticism toward traditional institutions being a key part of the populist package.

His fiscal plans seem in flux: concerned about facing criticism for planning reckless spending, he recently abandoned a pledge for large tax cuts. His Reform party deputy, Richard Tice, stated they would focus instead on public spending cuts.

Labour hopes this position will allow it to portray the populist as planning to reintroduce fiscal tightening – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting government spending.

An economics professor notes there exist inconsistencies within the populist platform, such as it is. “Reform is funded by affluent backers demanding lower taxes and deregulation, yet also emphasizing the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among wealthy supporters seeking radical free-market policies, and this narrative of restoring UK employment and industrial revival.”

Maintaining Control

Realistically, the evidence indicates populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader promises distinct solutions).

A recent paper in the American Economic Review examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, after 15 years, GDP per capita tends to be 10% lower in countries run by populist leaders compared to similar economies with more mainstream regimes.

“Financial decline, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the researchers.

Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at retaining office, remaining in power for a considerable time, versus four for their more moderate equivalents.

In other words, it remains uncertain that even when their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics.

But back in Buenos Aires, whether Milei’s populist project collapses or is sustained by external aid, the Argentine people are already bearing significant costs.