On Florida Street in Buenos Aires, informal currency traders known as arbolitos are busy under the hot sun, exchanging US dollars as Argentina approaches its 26 October midterm elections. Many anticipate a sharp devaluation of the peso once the vote concludes. President Javier Milei’s administration has maintained a fixed exchange rate to combat inflation, which has reached triple digits, but this policy has left foreign reserves dangerously low and the economy in a state of stagnation.
Economists across the political spectrum predict that the artificial stability will not last. The currency’s overvaluation has made Argentina the most expensive country in South America, discouraging domestic production while encouraging reliance on cheaper imported goods. Luciano Galfione, who leads a 75-year-old textile firm, describes the current period as the worst in his company’s history. Due to collapsing consumer demand, nearly 50 employees have been dismissed and 45 others suspended at his Buenos Aires factory.
Data from the Centre for Argentine Political Economy (CEPA) shows that between December 2023 and July 2025, around 18,000 businesses shut down and over 253,800 formal jobs disappeared. Milei’s decision to eliminate or reduce tariffs—unlike Donald Trump’s protectionist stance—has exposed local industries, already burdened by high taxes, to fierce competition from Chinese imports.
Galfione describes the situation as a “perfect storm”: devaluing the peso could trigger a spike in inflation, yet maintaining the current policy deepens the recession. For now, inflation control has come at the expense of economic contraction. Milei’s radical reforms, including sweeping privatisations and deep cuts in public spending, initially earned praise from the International Monetary Fund. His approach echoes that of Margaret Thatcher, who also prioritised inflation control above short-term economic pain.
However, confidence in Milei’s strategy has wavered following poor results in regional elections and corruption allegations. Only a proposed $20 billion currency support package from the US, championed by Trump, has prevented a full-blown financial crisis. Observers from Italy to Hungary and the UK are watching closely as Milei’s unorthodox policies confront economic reality.
Argentina’s long history of debt defaults and economic instability has made it fertile ground for populist leaders. Milei, a charismatic figure promising to dismantle the political elite, shares traits with other rightwing populists like Giorgia Meloni, Viktor Orbán, and Nigel Farage. Yet unlike Meloni, who moderated her earlier eurosceptic positions, Milei has pursued a more aggressive dismantling of state institutions.
In Europe, the aftermath of the 2008 financial crisis, the pandemic, and geopolitical shocks have fueled discontent. Stagnant wages and rising prices have led many to seek dramatic change. In France, President Macron hesitates to call early elections, fearing gains by Marine Le Pen’s populist movement. In the UK, Farage’s appeal lies in his promise to disrupt the status quo, despite offering few concrete economic plans.
Farage’s Reform Party has distanced itself from earlier pledges of large-scale tax reductions, instead focusing on spending cuts. Critics, including economist Jo Michell, point to contradictions: wealthy donors push for deregulation and tax breaks, while the party claims to champion working-class interests. Promises to revive defunct steel plants using coal clash with modern economic realities and investor expectations.
Michell warns that unfunded tax cuts—similar to Liz Truss’s failed mini-budget—could provoke a negative reaction from global markets. With high public debt and rising demands for defence and social spending, many developed nations face tight fiscal conditions. Bond markets remain sensitive, and any perceived fiscal irresponsibility could drive up borrowing costs.
Despite risks, detailed critiques of populist platforms often fail to gain traction. Labour’s Rachel Reeves has noted Brexit’s negative impact on growth forecasts but avoids making it a central issue. Oxford professor Ben Ansell argues that countering populism requires compelling communication—charisma and relatability—not just policy rebuttals.
Economist Ann Pettifor sees populism as a symptom of systemic inequality, enriching the few while impoverishing the many. She advocates for a left-wing alternative that challenges corporate power and financial elites, redirecting blame from foreign nations to domestic centres of influence like Wall Street.
Trump, while aligned with Milei in style, diverges in policy—using tariffs and state intervention in ways more reminiscent of Beijing than traditional US free-market doctrine. While AI-driven investment has masked some economic strain, experts warn of potential bubbles. More damaging, they argue, could be Trump’s attacks on judicial independence and central bank autonomy.
Research published in the American Economic Review analysed 51 populist leaders from 1900 to 2020. It found that after 15 years, GDP per capita in countries led by populists was on average 10% lower than in comparable non-populist nations. The study links populist governance to economic instability and institutional erosion.
Yet paradoxically, such leaders often remain in power longer—averaging eight years compared to four for moderates. Their appeal extends beyond economics, tapping into desires for sovereignty and change. As seen with Brexit, the promise of “taking back control” resonates even when economic outcomes falter.
In Argentina, regardless of whether Milei’s policies collapse or are sustained by foreign aid, citizens have already endured significant hardship. The cost of radical economic experimentation is being paid in lost jobs, shuttered businesses, and deepening inequality.
— news from The Guardian
— News Original —
Do populists always crash the economy?
“Cambio, cambio.” Under the blazing sun, dozens of money changers are hawking US dollars along Florida Street, a bustling pedestrian strip in Buenos Aires. Known as arbolitos (“little trees”), they are thriving ahead of the 26 October midterm elections in a country long used to saving in the greenback. n n”The best time to buy is now,” says one arbolito, declining to give her name. “[The dollar] went down a little but it is a fake-out – it’ll rise again.” n nLike her, economists across the spectrum expect a devaluation of the Argentine peso once the voting is over. The president, Javier Milei, has placed a cap on the currency to tame triple-digit inflation and now it remains overvalued and reserves are depleted, leaving Argentina’s economy stagnant as consumers turn to cheap imports. n nLuciano Galfione, a textile industrialist, says the 75-year-old family company he heads is living through “the worst moment in its history”. Since the chainsaw-wielding Milei took office, Galfione has laid off almost 50 workers and suspended 45 more at his Buenos Aires mill as consumption has slumped. n nBetween December 2023 and July 2025, 18,000 businesses have closed and 253,800 registered jobs have been lost, according to the Centre for Argentine Political Economy (CEPA). Alongside the exchange rate freeze, which made Argentina the most expensive country in South America, Milei’s government – unlike Donald Trump’s – has reduced or scrapped tariffs, leaving heavily taxed local industries at a disadvantage against Chinese imports. n n”It’s the perfect storm,” says Galfione, seeing no easy exit for Milei from his predicament. “If he devalues the currency, inflation will soar. For now, his only achievement is containing it – at the cost of a major recession.” n nTogether with the retirees who protest against deep cuts in their pensions outside Congress every Wednesday, Galfione is among those counting the costs of Argentina’s turn to Milei two years ago. n nMilei’s populist experiment now faces a defining moment. From Trump (who is trying to prop up Milei and the peso with a $20bn (£15bn) currency lifeline) to Italy’s Giorgia Meloni, Hungary’s Viktor Orbán and the UK’s Nigel Farage, politicians around the world are closely watching what happens when populist economic prescriptions collide with reality. n nFertile ground n nArgentina is a very special case. The country has been repeatedly racked by debt defaults and economic crises and its voters have been susceptible over the years to leftwing populism, in the form of the powerful Peronist movement, and now Milei’s rightwing version. n nMilei is a textbook populist: charismatic, iconoclastic, promising muscular policies to wrestle back control of the economy from the establishment on behalf of the people. n nThese key characteristics are shared by his ally to the north, Trump, and by Farage, who styles himself as a pint-swilling people’s champion despite being a privately educated former stockbroker. n nUntil recent months, Milei’s approach – involving extensive privatisations and deep public spending cuts – had won plaudits from the IMF for helping to bring inflation under control. The programme has something in common with that of Milei’s idol Margaret Thatcher, who also saw inflation as a dragon to be slain, no matter the cost. n nBut financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in provincial elections and a series of corruption scandals. Only massive financial intervention by Trump has averted what looked set to become a full-blown currency crisis. n nMilei’s travails raise wider questions about the appeal of charismatic populists who wield simple answers in today’s complex and fragmented global economy. n nAcross Europe, the aftermath of the 2008 financial crisis has been fertile ground for populists to flourish in. Ordinary citizens bore the costs of rebuilding after the great crash while banks were bailed out by the taxpayer. The Covid pandemic and Russia’s invasion of Ukraine brought fresh turmoil. Stagnant living standards, as evidenced by sluggish wage growth and surging prices, have driven a hunger for change – and for scapegoats. n nIn France, Emmanuel Macron is trying to avoid calling a snap election for fear of his centre-right Renaissance party succumbing to the populist Marine Le Pen. Public dissatisfaction with a package of austerity policies aimed at tackling France’s yawning deficit and placating jittery bond markets is at the heart of the tussle. n nItalian voters turned to the charismatic rightwing populist Meloni in 2022. She had served in Silvio Berlusconi’s coalition cabinet as a member of the far-right National Alliance and founded her own party,Brothers of Italy, in 2011, offering a radical rightwing alternative to the austerity policies of Mario Monti’s technocratic government. n nShe has not brought the tear-it-all-down approach to economic policy deployed by Milei – she quietly dropped earlier calls for Italy to leave the euro, for example – but she has appealed to voters’ desire to overturn the status quo, blaming immigration for Italy’s struggles. n nIn the UK, the appeal of Farage is not hard to diagnose, says Ben Ansell, a professor of comparative democratic institutions at the University of Oxford’s Nuffield College. “The answer is probably quite simple: people feel rotten about the economy and have done since the end of Covid or the start of the Ukraine war. They switched government, they still feel awful, they don’t trust the main parties, so they turn to someone who says: ‘Everything needs to be disrupted: trust me.’” n nContradictions n nThe vote for Brexit in 2016 arguably had some of the same logic, and its figurehead, Boris Johnson, swept away doubts about economic detail with a bullish determination to implement the “will of the people” in the face of the establishment’s horror. n nFarage has so far committed few policies to paper aside from a call for mass deportations, which he subsequently appeared to revise on the hoof. He wants to rein in the Bank of England, perhaps even ditching its governor, Andrew Bailey, with scepticism of a stodgy establishment being a key part of the populist package. n nHis tax and spending policies appear to be in flux: wary of being accused of planning a Liz Truss-style splurge, he recently abandoned a promise to make £90bn of tax cuts. His Reform party deputy, Richard Tice, said they would concentrate instead on public spending cuts. n nLabour hopes this stance will enable it to portray Farage as planning to bring back austerity – a point Rachel Reeves, the chancellor, has made repeatedly, contrasting it with her approach of increasing public investment. n nJo Michell, a professor of economics at the University of the West of England, says there are contradictions in Farage’s economic programme, such as it is. n n”Reform are bankrolled by very wealthy people demanding tax cuts and deregulation, but also talking a lot about the grievances of working people and the loss of industrial jobs and things that really resonate,” he says. “There’s a tension there between rich backers who want Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.” n nFarage enjoys the company of cryptocurrency entrepreneurs but has also promised to reopen shuttered steelworks and run them on British coal. n nMichell says if a Farage government tried to implement massive tax giveaways to the wealthy without a plan to fund them, it would go down about as well with international investors that lend to the UK as Truss’s mini-budget. “If it was tax cuts without spending cuts, the markets would puke,” he says. n nReform would face the same formidable challenge in winning over the markets as governments of all stripes in many developed economies currently do. n nHefty public debts run up through the financial crisis and the Covid years, combined with the need for more spending on defence and ageing societies, mean borrowing has been rising in many countries simultaneously, making bond markets unusually volatile – with knock-on effects for interest rates. n nDespite the risks, as in the Brexit campaign it is unclear how successful detailed rebuttal of Reform’s economic policy is likely to be. Reeves has recently acknowledged that Brexit is one reason the Office for Budget Responsibility has cut its growth forecasts, but Labour has been consistently reluctant to lean into the issue. n nAnsell says successfully taking on populist arguments requires deft political communication. “You have to do it with a lot of charisma, with humour,” he says. n nThe leftwing economist Ann Pettifor agrees that no one should be surprised by the allure of economic populism. “There’s real anger about the wrongness of the system, which is structurally impoverishing the many and enriching the few,” she says. n nHer riposte to the likes of Milei, Trump and Farage would be a left populism, akin to that on offer from the New York mayoral candidate Zohran Mamdani or the UK Green party leader, Zack Polanski, or once upon a time by Jeremy Corbyn, that challenges the power of corporations, central banks and the super-rich. n n”Trump is saying: ‘We should blame Mexico and Canada and China,’” Pettifor says. “The left should be saying the problem is Silicon Valley and Wall Street.” n nTrump shares Milei’s love of chaos and showbiz but his approach does not fit straightforwardly into his Argentinian ally’s laissez-faire playbook. While Trump has cut taxes for the wealthy and slashed regulation in some sectors, his administration has also taken stakes in strategic firms and used trade policy as a political weapon – a muscular interventionism more familiar in Beijing than Washington. n nSo far the impact of the tariff blitz on the US economy appears to be relatively muted, though it is being masked by the historic boom in AI investment, which a growing number of experts warn may be a bubble. n nMany experts believe Trump’s attacks on the Federal Reserve and blatant disregard for the rule of law may ultimately be more corrosive for the future health of the US economy than his erratic trade policies. n nHolding on to power n nIn truth, the evidence suggests neither left nor right populists tend to fare well when faced with real-world challenges (though of course each charismatic individual claims to offer something unique). n nA recent paper in the American Economic Review analysed the performance of 51 populist presidents and prime ministers, from 1900 to 2020. It found that on average, after 15 years, gross domestic product per head tends to be 10% lower in countries run by populist leaders than in similar economies with more mainstream regimes. n n”Economic disintegration, decreasing macroeconomic stability and the erosion of institutions typically go hand in hand with populist rule,” argue the paper’s authors, Manuel Funke, Moritz Schularick and Christoph Trebesch. n nAnother intriguing finding of the research, though, is that despite their economic costs, these leaders tend to be good at holding on to power, lasting on average eight years, compared with four for their more moderate equivalents. n nIn other words, it is not clear that even when their plans crash, populists immediately pay the price at the ballot box. Like the Brexiters’ promise to “take back control”, their appeal reaches beyond mundane economics. n nBut back in Buenos Aires, whether Milei’s populist project collapses or is kept on life support by Trump, Argentina’s citizens have already paid a heavy price. n nAdditional reporting by Facondo Iglesia