🔗 Share this article Can Populist-Led Governments Inevitably Wreck the Economic System? “Dollars, dollars.” Beneath the scorching heat, dozens of currency traders are selling American currency on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October midterm elections in a nation accustomed to saving in the greenback. “The best time to buy is now,” says one arbolito, refusing to provide her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.” Similar to her, economists from all backgrounds expect a depreciation of the Argentine peso after the election concludes. President Javier Milei has imposed a limit on the currency to control soaring price increases and currently it is overvalued and reserves are depleted, causing Argentina’s economy sluggish as consumers turn to cheap imports. Ideal Conditions The nation represents a unique situation. Argentina has been repeatedly racked by debt defaults and financial turmoil and the electorate have been receptive over the years to leftwing populism, in the form of the influential Peronist movement, and currently Milei’s conservative populism. The president epitomizes populist leadership: charismatic, unconventional, vowing forceful measures to wrestle back control of economic management from the establishment for the benefit of ordinary citizens. These key characteristics are also seen in his ally to the north, and by the UK politician, who presents himself as a beer-drinking champion of the common man despite being a public school-educated ex-finance professional. Until recent months, the president’s strategy – including extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to control inflation under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed inflation as a dragon to be slain, no matter the cost. However investors began losing confidence in the government’s agenda lately after a poor performance in local polls and a series of corruption scandals. Only large-scale economic support from abroad has prevented what looked set to become a full-blown currency crisis. Inconsistencies The 2016 referendum in 2016 likely contained some of the same logic, and its figurehead, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to enact public demand in the face of elite opposition. Farage to date outlined limited plans in writing except for proposals for mass deportations, that he later appeared to revise spontaneously. He wants to rein in the central bank, possibly ditching its governor, the incumbent, with distrust toward traditional institutions as a central element of the populist package. His fiscal plans appear to be unsettled: concerned about being accused of planning reckless spending, he recently abandoned a promise for large tax reductions. His second-in-command, Richard Tice, said they would concentrate instead on reductions in government expenditure. The opposition hopes this stance will enable it to portray the populist as planning to bring back austerity – a point the chancellor has emphasized often, contrasting it with her strategy of boosting government spending. An economics professor notes there are contradictions within the populist platform, as it stands. “The party is funded by very wealthy people demanding tax cuts and reduced rules, but also emphasizing the complaints of working people and the decline in manufacturing employment,” he says. “There is a conflict there among rich backers seeking radical free-market policies, and this narrative of bringing back UK employment and industrial revival.” Maintaining Control In truth, research indicates neither left nor right populists often perform poorly when confronting practical difficulties (though of course each charismatic individual claims to offer distinct solutions). A recent paper from a leading journal examined the outcomes of dozens of populist leaders, over more than a century. It found typically, after 15 years, gross domestic product per head tends to be a tenth less in nations run by populist rulers compared to similar economies under conventional leadership. “Economic disintegration, weakening economic fundamentals and the decay of governance usually occur together under populist governments,” argue the researchers. A further interesting result from the study, however, is that even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for a considerable time, versus shorter tenures for their more moderate equivalents. In other words, it is not clear that even when their plans crash, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond everyday financial matters. But back in Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens are already bearing a heavy price.