🔗 Share this article Can Populist Governments Always Wreck the Economy? “Dollars, dollars.” Beneath the scorching heat, dozens of money changers are offering US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation accustomed to saving in the greenback. “The best time to buy is currently,” says one arbolito, declining to give her name. “[The dollar] went down slightly but it is a fake-out – it will rebound.” Like her, economists across the spectrum expect a devaluation of the Argentine peso once the voting is over. The president has imposed a limit on the currency to control triple-digit price increases and now it remains overvalued and foreign reserves are depleted, leaving the national economy sluggish as consumers turn to cheap imports. Ideal Conditions Argentina is a very special case. Argentina has been repeatedly racked by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, such as the powerful Peronist movement, and now Milei’s conservative populism. The president epitomizes populist leadership: captivating, unconventional, vowing muscular policies to reclaim command of economic management from traditional elites on behalf of ordinary citizens. These defining traits are also seen in his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling people’s champion despite being a public school-educated former stockbroker. Until recent months, Milei’s approach – involving extensive privatisations and severe budget reductions – had won plaudits from international lenders for helping to bring inflation in check. The programme has something in common with that of his political hero the former UK prime minister, who similarly viewed inflation as a dragon to be defeated, no matter the cost. But financial markets started to doubt in Milei’s radical project lately following a poor performance in provincial elections and multiple corruption scandals. Only large-scale economic support from abroad has averted what seemed destined to be a major currency crisis. Inconsistencies The vote for Brexit several years ago likely contained similar reasoning, and its figurehead, the former prime minister, swept away concerns regarding fiscal impacts with confident resolve to enact public demand in the face of the establishment’s horror. Farage has so far outlined limited plans to paper aside from a call for large-scale removals, that he later appeared to revise spontaneously. He aims to curb the central bank, possibly replacing its head, Andrew Bailey, with distrust of a stodgy establishment being a key part of the populist package. His tax and spending policies appear to be in flux: wary of being accused of proposing reckless spending, he recently abandoned a promise to make significant tax cuts. His second-in-command, the party chairman, stated they would focus instead on public spending cuts. The opposition aims this position will enable it to portray the populist as intending to reintroduce fiscal tightening – a point Rachel Reeves has made repeatedly, contrasting it with her strategy of boosting government spending. Jo Michell says there are contradictions within the populist platform, such as it is. “The party are bankrolled by very wealthy people demanding lower taxes and reduced rules, yet also emphasizing the grievances of working people and the decline of industrial jobs,” he says. “There’s a tension there between wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and reindustrialisation.” Holding on to Power Realistically, the evidence suggests populists of any stripe often perform poorly when faced with real-world challenges (although every populist leader claims to offer something unique). Recent research from a leading journal examined the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, over the long term, GDP per capita tends to be a tenth less in countries run by populist leaders compared to similar economies with more mainstream regimes. “Economic disintegration, weakening economic fundamentals and the erosion of institutions usually go hand in hand under populist governments,” contend the paper’s authors. Another intriguing finding of the research, however, is even with their negative impacts, these leaders tend to be good at retaining office, remaining in power for eight years, compared with shorter tenures for their more moderate equivalents. Put simply, it is not clear that even when their policies fail, populists face immediate consequences in elections. Like the Brexiters’ promise to regain sovereignty, their attraction reaches beyond mundane economics. Yet returning to Buenos Aires, regardless of if Milei’s populist project collapses or is kept on life support by external aid, the Argentine people have already paid significant costs.