🔗 Share this article Can Populist Administrations Inevitably Wreck the Economy? “Exchange, exchange.” Under the blazing sun, dozens of currency traders are selling US dollars along Florida Street, a lively shopping street in Buenos Aires. Referred to as arbolitos (“small trees”), their business is booming ahead of the 26 October congressional elections in a nation long used to holding the greenback. “The best time to buy is now,” says a arbolito, refusing to provide her identity. “[The dollar] dropped slightly but it is a fake-out – it’ll rise again.” Similar to her, economic experts from all backgrounds anticipate a depreciation of the Argentine peso after the election is over. President Javier Milei has placed a cap on the peso to control triple-digit price increases and now it remains artificially high and foreign reserves are exhausted, leaving Argentina’s economy stagnant as consumers opt for cheap imports. Fertile Ground The nation is a very special case. Argentina has frequently been hit by debt defaults and financial turmoil and its voters have been susceptible over the years to left-leaning populist movements, in the form of the influential Peronist movement, and now the president’s conservative populism. The president epitomizes populist leadership: charismatic, iconoclastic, promising muscular measures to wrestle back command of the economy from traditional elites on behalf of the people. These defining traits are shared by his political partner in the United States, and by the UK politician, who styles himself as a pint-swilling champion of the common man despite being a privately educated former stockbroker. Until recent months, the president’s strategy – involving widespread sell-offs and deep public spending cuts – had earned praise from international lenders for helping to control inflation under control. This plan has something in common with the policies of his political hero the former UK prime minister, who also saw inflation as a monster to be defeated, no matter the cost. However financial markets began losing confidence in the government’s agenda in recent months after a poor performance in provincial elections and a series of graft allegations. Only large-scale financial intervention 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 leader, the former prime minister, dismissed doubts regarding fiscal impacts with a bullish determination to implement the “will of the people” despite the establishment’s horror. The Reform leader to date outlined limited plans to paper aside from proposals for large-scale removals, that he later appeared to revise on the hoof. He wants to rein in the central bank, perhaps even replacing its head, Andrew Bailey, with distrust toward traditional institutions as a central element of the populist package. His fiscal plans seem in flux: wary of being accused of planning reckless spending, he lately abandoned a pledge to make significant tax reductions. His second-in-command, Richard Tice, said they would focus instead on reductions in government expenditure. Labour aims this position will enable it to portray the populist as planning to reintroduce austerity – a point the chancellor has emphasized often, comparing it unfavorably to her strategy of increasing government spending. An economics professor says there are contradictions within the populist platform, such as it is. “Reform are bankrolled by very wealthy people calling for lower taxes and deregulation, but also talking a lot about the grievances of working people and the loss in manufacturing employment,” he explains. “There’s a tension there among rich backers who want radical free-market policies, and this narrative of restoring UK employment and reindustrialisation.” Maintaining Control Realistically, the evidence suggests neither left nor right populists tend to fare well when faced with practical difficulties (though of course every populist leader promises something unique). Recent research from a leading journal analysed the outcomes of 51 populist presidents and prime ministers, from 1900 to 2020. The study revealed typically, after 15 years, GDP per capita is often a tenth less in countries run by populist leaders compared to comparable countries with more mainstream regimes. “Financial decline, weakening economic fundamentals and the erosion of institutions typically go hand in hand with populist rule,” contend the paper’s authors. Another intriguing finding from the study, though, is that despite their economic costs, populist figures are often effective at holding on to power, lasting on average eight years, compared with shorter tenures for mainstream politicians. In other words, it is not clear whether even if their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal extends past mundane economics. Yet returning to Buenos Aires, whether the government’s agenda fails or is kept on life support through foreign assistance, Argentina’s citizens have already paid a heavy price.