🔗 Share this article Can Populist-Led Governments Inevitably Crash the Economy? “Dollars, dollars.” Beneath the blazing sun, 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 ahead of the 26 October congressional elections in a nation long used to holding the greenback. “The optimal moment to buy is now,” states a arbolito, declining to give her identity. “[The dollar] dropped a little but it’s deceptive – it will rebound.” Similar to her, economic experts from all backgrounds expect a devaluation of the Argentine peso after the election is over. The president has placed a cap on the currency to tame triple-digit inflation and currently it remains overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers turn to low-cost foreign goods. Ideal Conditions The nation represents a unique situation. The country has been repeatedly racked by debt defaults and economic crises and the electorate have been susceptible over the years to leftwing populism, in the form of the influential Peronism, and currently Milei’s rightwing version. Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular policies to wrestle back control of economic management from traditional elites for the benefit of ordinary citizens. These key characteristics are shared by his ally to the north, as well as Nigel Farage, who styles himself as a pint-swilling people’s champion even though he is a privately educated ex-finance professional. Until recent months, Milei’s approach – involving extensive privatisations and deep budget reductions – had won plaudits from international lenders for contributing to control inflation in check. This plan has something in common with that of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, no matter the cost. But financial markets began losing confidence in the government’s agenda in recent months after a shaky result in provincial elections and multiple graft allegations. Solely large-scale economic support by the US has prevented what seemed destined to be a full-blown monetary collapse. Inconsistencies The vote for Brexit in 2016 arguably had some of the same logic, and its leader, the former prime minister, swept away concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” despite elite opposition. The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with distrust of a stodgy establishment being a key part of the populist package. His fiscal plans seem in flux: concerned about being accused of proposing reckless spending, he recently dropped a promise to make significant tax cuts. His second-in-command, the party chairman, said they would concentrate instead on reductions in government expenditure. The opposition aims this stance will enable it to portray the populist as intending to reintroduce austerity – an argument the chancellor has emphasized often, contrasting it with her approach of increasing public investment. An economics professor notes there are contradictions within the populist platform, as it stands. “Reform are bankrolled by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the grievances of ordinary workers and the loss in manufacturing employment,” he says. “There’s a tension there among rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.” Maintaining Control In truth, research suggests populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader claims to offer distinct solutions). Recent research from a leading journal examined the performance of dozens of populist leaders, over more than a century. It found that on average, over the long term, gross domestic product per head is often a tenth less in countries run by populist leaders compared to comparable countries with more mainstream regimes. “Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together with populist rule,” argue the paper’s authors. Another intriguing finding from the study, though, is despite their economic costs, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus four for mainstream politicians. Put simply, it remains uncertain whether even if their plans crash, such leaders face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond everyday financial matters. Yet returning to Buenos Aires, regardless of if Milei’s populist project fails or is sustained through foreign assistance, Argentina’s citizens are already bearing a heavy price.