🔗 Share this article Do Populist Administrations Always Crash the Economy? “Exchange, exchange.” Beneath the scorching heat, scores of money changers are hawking US dollars on Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming before the 26 October congressional elections in a nation accustomed to saving in the US dollar. “The optimal moment to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] went down slightly but it’s deceptive – it’ll rise again.” Like her, economic experts from all backgrounds anticipate a devaluation of the Argentine peso after the election concludes. The president has imposed a cap on the peso to tame soaring price increases and now it is overvalued and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for cheap imports. Ideal Conditions The nation 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 leftwing populism, such as the powerful Peronism, and now the president’s rightwing version. Milei epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to reclaim control of the economy from the establishment for the benefit of the people. These key characteristics are shared by his political partner to the north, as well as the UK politician, who presents himself as a pint-swilling champion of the common man even though he is a public school-educated former stockbroker. Up until lately, the president’s strategy – involving extensive privatisations and deep public spending cuts – had earned praise from the IMF for helping to bring inflation under control. The programme has something in common with that of Milei’s idol the former UK prime minister, who also saw rising prices as a dragon 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 a series of corruption scandals. Only massive economic support by the US has prevented what looked set to become a full-blown currency crisis. Inconsistencies The vote for Brexit in 2016 likely contained some of the same logic, and its leader, the former prime minister, dismissed concerns regarding fiscal impacts with confident resolve to enact public demand despite the establishment’s horror. The Reform leader to date outlined limited plans to paper except for proposals for large-scale removals, which he subsequently appeared to revise on the hoof. He wants to rein in the central bank, possibly ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of populist rhetoric. His tax and spending policies appear to be unsettled: concerned about facing criticism for planning a Liz Truss-style splurge, he lately abandoned a pledge for significant tax reductions. His Reform party deputy, the party chairman, stated they would focus instead on reductions in government expenditure. The opposition hopes this stance will allow it to portray the populist as planning to reintroduce austerity – an argument the chancellor has made repeatedly, contrasting it with her strategy of boosting public investment. An economics professor notes there are contradictions within the populist platform, as it stands. “Reform is funded by very wealthy people calling for lower taxes and deregulation, but also emphasizing the complaints of ordinary workers and the decline in manufacturing employment,” he says. “There is a conflict there among wealthy supporters seeking radical free-market policies, and this narrative of restoring British jobs and industrial revival.” Holding on to Power In truth, the evidence suggests populists of any stripe often perform poorly when faced with practical difficulties (although every populist leader claims to offer something unique). Recent research in the American Economic Review examined the performance of dozens of populist leaders, over more than a century. It found typically, over the long term, GDP per capita is often 10% lower in nations run by populist rulers compared to comparable countries with more mainstream regimes. “Financial decline, decreasing macroeconomic stability and the decay of governance typically go hand in hand with populist rule,” argue the paper’s authors. A further interesting result of the research, though, is despite their economic costs, these leaders are often effective at holding on to power, remaining in power for eight years, versus shorter tenures for their more moderate equivalents. Put simply, it remains uncertain whether even if their policies fail, populists face immediate consequences in elections. Similar to pledges made to “take back control”, their appeal reaches beyond everyday financial matters. Yet returning to Buenos Aires, whether Milei’s populist project collapses or is kept on life support by external aid, the Argentine people are already bearing a heavy price.