🔗 Share this article Can Populist Governments Inevitably Crash the Economic System? “Exchange, exchange.” Beneath the scorching heat, scores of currency traders are hawking US dollars along Florida Street, a lively shopping street in Buenos Aires. Known as arbolitos (“little trees”), their business is booming ahead of the 26 October midterm elections in a country long used to holding the greenback. “The best time to buy is currently,” says one arbolito, declining to give her name. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.” Similar to her, economists from all backgrounds expect a depreciation of the national currency after the voting concludes. President Javier Milei has imposed a limit on the peso to tame triple-digit price increases and currently it is overvalued and foreign reserves are depleted, causing the national economy stagnant as consumers turn to low-cost foreign goods. Fertile Ground The nation represents a unique situation. The country has been repeatedly racked by sovereign defaults and economic crises and the electorate have been receptive for decades to leftwing populism, in the form of the powerful Peronism, and now the president’s conservative populism. Milei epitomizes populist leadership: captivating, unconventional, promising muscular policies to reclaim control of economic management from the establishment for the benefit of the people. These key characteristics are also seen in his ally in the United States, as well as Nigel Farage, who presents himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker. Up until lately, the president’s strategy – including widespread sell-offs and severe budget reductions – had won plaudits from the IMF for contributing to bring price rises in check. The programme shares similarities with that of his political hero Margaret Thatcher, who also saw inflation as a monster to be defeated, regardless of the consequences. But investors began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Only large-scale economic support from abroad has prevented what seemed destined to be a major currency crisis. Contradictions The vote for Brexit in 2016 arguably had similar reasoning, and its figurehead, Boris Johnson, swept away concerns about economic detail 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 in writing aside from proposals for mass deportations, that he later appeared to revise on the hoof. He aims to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with distrust of a stodgy establishment as a central element of the populist package. His tax and spending policies seem unsettled: concerned about being accused of proposing a Liz Truss-style splurge, he lately dropped a promise to make significant tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on reductions in government expenditure. Labour aims this stance will enable it to depict the populist as planning to reintroduce fiscal tightening – a point the chancellor has made repeatedly, contrasting it with her approach of boosting public investment. An economics professor says there are contradictions in Farage’s economic programme, as it stands. “Reform is funded by affluent backers calling for lower taxes and deregulation, but also emphasizing the grievances of ordinary workers and the decline of industrial jobs,” he explains. “There is a conflict here among wealthy supporters who want Thatcherism on steroids, and this narrative of restoring UK employment and reindustrialisation.” Maintaining Control Realistically, research indicates neither left nor right populists often perform poorly when confronting practical difficulties (although every populist leader claims to offer something unique). Recent research from a leading journal analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head is often a tenth less in nations governed by populist rulers compared to comparable countries with more mainstream regimes. “Financial decline, decreasing macroeconomic stability and the erosion of institutions typically occur together under populist governments,” contend the paper’s authors. Another intriguing finding of the research, though, is despite their economic costs, populist figures are often effective at holding on to power, remaining in power for a considerable time, compared with four for their more moderate equivalents. Put simply, it is not clear whether even if their policies fail, populists face immediate consequences at the ballot box. Similar to pledges made 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 through foreign assistance, the Argentine people are already bearing a heavy price.