🔗 Share this article Can Populist Administrations Always Wreck the Economic System? “Exchange, exchange.” Under the scorching heat, scores of currency traders are selling US dollars along Florida Street, a lively pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the October 26 midterm elections in a nation long used to saving in the greenback. “The optimal moment to buy is currently,” states one arbolito, refusing to provide her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.” Similar to her, economic experts from all backgrounds expect a devaluation of the national currency once the voting concludes. President Javier Milei has placed a cap on the peso to control soaring price increases and now it remains overvalued and reserves are exhausted, leaving the national economy stagnant as consumers turn to low-cost foreign goods. Ideal Conditions Argentina represents a unique situation. Argentina has been repeatedly hit by sovereign defaults and economic crises and its voters have been receptive for decades to leftwing populism, such as the influential Peronist movement, and currently the president’s conservative populism. Milei is a textbook populist: charismatic, iconoclastic, vowing muscular measures to wrestle back command of the economy from the establishment for the benefit of ordinary citizens. These key characteristics are shared by his political partner in the United States, and by the UK politician, who presents 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 – involving extensive privatisations and severe budget reductions – had won plaudits from the IMF for helping to bring price rises under control. The programme has something in common with the policies of Milei’s idol the former UK prime minister, who similarly viewed rising prices as a dragon to be defeated, regardless of the consequences. But financial markets began losing confidence in the government’s agenda in recent months following a poor performance in local polls and a series of corruption scandals. Solely large-scale financial intervention from abroad has prevented what looked set to become a major currency crisis. Inconsistencies The 2016 referendum several years ago arguably had similar reasoning, and its figurehead, the former prime minister, dismissed concerns regarding fiscal impacts with a bullish determination to enact the “will of the people” in the face of elite opposition. The Reform leader to date outlined limited plans to paper except for a call for mass deportations, that he later seemed to adjust spontaneously. He wants to curb the central bank, perhaps even replacing its head, the incumbent, with scepticism of a stodgy establishment being a key part of populist rhetoric. His tax and spending policies appear to be in flux: concerned about facing criticism for proposing a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His second-in-command, the party chairman, stated they would concentrate instead on public spending cuts. Labour aims this position will enable it to depict the populist as planning to bring back austerity – an argument the chancellor has made repeatedly, comparing it unfavorably to her approach of increasing government spending. An economics professor notes there exist inconsistencies within the populist platform, such as it is. “The party are bankrolled by affluent backers demanding lower taxes and deregulation, yet also talking a lot about the grievances of working people and the decline of industrial jobs,” he says. “There is a conflict there among rich backers seeking Thatcherism on steroids, and this story of restoring British jobs and reindustrialisation.” Maintaining Control Realistically, the evidence suggests populists of any stripe tend to fare well when confronting real-world challenges (although every populist leader promises distinct solutions). Recent research from a leading journal examined the performance of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed that on average, over the long term, GDP per capita is often 10% lower in nations run by populist rulers compared to comparable countries under conventional leadership. “Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand under populist governments,” argue the researchers. Another intriguing finding of the research, however, is despite their economic costs, populist figures tend to be good at retaining office, remaining in power for eight years, versus four for mainstream politicians. In other words, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made to “take back control”, their attraction extends past mundane economics. But back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.