Tough Times in Tango Town

I've been visiting Buenos Aires for ten years now, and from as soon as we arrived this year, it was obvious that things in the Argentine economy weren't going so well. Inflation is rocketing. The official rate is 12%. This figure is so widely at variance with people's experience (people we talked to claimed anything from 25% to 40%), that the International Monetary Fund has officially queried the government's estimate. Unemployment is up to 7.2% and expected to rise as the country mires into recession. Political protests were an almost daily event while we were there (in October) and there have been more and larger protests since.

Despite this, everyday life seemed at first glance to be carrying on much as usual and we were enjoying our visit, wincing at the higher prices but generally able to pretend that things hadn't got that bad really.

Buenos Aires pavements are a mess and the amount of rubbish that can pile up is startling, so it was a few days before I saw anything out of the usual in the stack of old chairs, boxers and blankets just along from our flat in a fashionable area near the centre of town. I passed it every day and it was only when I heard a child crying that I paid it any attention. It took a while before I could quite believe what I was seeing. This pile of garbage was home to a man, his wife and two small girls.

When I mentioned this to people we know who live there, their response was simply to ignore the reality of what was happening. One very pleasant, kind woman I know said that there was no need for people to squat in the centre of town as there are squatter camps emerging on the outskirts. The opinion of most locals is probably summed up in this photo. Immediately above this family's home someone has stuck a flyer asking for information about the loss of their family pet, the stray dog obviously a greater concern than the people living underneath their notice.

Once you start to notice these makeshift shelters, they are everywhere. There is even someone living outside the Parliament building. (Apparently the Argentine government has yet to introduce the same legislation that would prohibit this in London.)

At least these people have shelters and, in some cases, a job. Not everyone is so lucky.

How did this happen? Since Argentina defaulted on its debts in 2002, it has had the fastest growth rate in South America. Its economic boom has been hailed by many as an example of what Greece could achieve if it followed suit. But the last year has seen the economic miracle run out of steam and the second quarter of 2012 saw GDP contract.

Cristina Kirchner's government was re-elected only last year in what commentators called a "landslide" victory. But with the wheels apparently coming off the economy, the government has responded by courting its supporters with an array of subsidies and giveaways.

The problem with this approach is that the very economic problems that have made this necessary mean that the government hasn't the money to pay for them. They've tried to solve that problem by printing more cash. Obviously this has added to inflation and weakened the peso on international markets. Cristina's response has been to impose an arbitrary exchange rate with no relationship to market values. So the official exchange rate at the beginning of October was 4.7 pesos to the dollar, though the street rate was 5.8. By the time we left, at the end of the month, the street rate was 6.0. Argentina isn't East Germany before the Wall came down. People travel regularly to the US and other areas where they need dollars. Government restrictions on the export of dollars simply boost demand for black market currency. Despite a police crackdown at the end of October, this problem will not go away.

With the government increasingly unable to balance its books, the handouts are now being matched with cutbacks. So, while there is talk of a laptop for every child (now amended to a notebook for every child), adult education is being cut back. In the latest move to save cash, government workers whose fuel bills are being subsidised by a few pesos are being asked to pay for this generosity by seeing their salaries slashed. Hence the strikes and protests.

Cristina is also taking lessons from the last strong woman to hold the levers of power in Argentina. She is building a cult of personality, identifying herself with Eva Peron. Huge pictures of Evita now adorn the state broadcasting station, dominating the view down the Avenida 9 Julio.

On the Avenida de Mayo there's a new museum to Evita, packed with relics of Argentina's secular saint.

Meanwhile, Cristina's faction within the Peronists plasters the city with posters of her and, slightly morbidly, her late husband, Nestor, who was President before her.

The result of all this is an increasingly divided country. Peronist loyalists give every impression of satisfaction with a leader who is constantly on television assuring them that the economy is sound, inflation negligible and the people easily able to live on six pesos a day (well under £1). The rest of the people loathe her, denouncing her as, at best, living in a fantasy world and, at worst, the lying leader of a corrupt party threatening basic democracy in Argentina.

How have a sophisticated, educated people got into such a mess? Partly, it seems to be the lack of an effective opposition. The Peronists, whose enthusiasm for taking politics out of politics rivals Nick Clegg's Liberals, have welcomed so many different elements into their broad church that the only realistic prospect to defeat Cristina is another faction within the party. Ordinary people, while constantly discussing political theory, see the actual politicians they are presented with as out of touch and unresponsive. The fact that many of them are blatantly helping themselves and their friends to government money doesn't help. So Cristina and the Front For Victory hold onto power but apparently with little idea what to do next. They are lurching leftward at a rate that alarms the middle classes, choosing to make political alliances with Hugo Chavez's Venezuela, instead of the economic powerhouse of Brazil that shares their northern border. They posture about refusing to pay the money the government owes to US hedge funds. (While we were there, the Libertad, a tall ship that is the pride of the Argentine Navy was seized in Ghana in lieu of unpaid debts.) They threaten Britain over the Falklands/Malvinas Islands in an attempt to rouse patriotic sentiment, while making no proper provision for soldiers who suffered during the war there. By now, Cristina's main political goal seems to be to change the Constitution so that she can run again in 2015 when her second, and final, term expires.

Everyone knows that it will end badly, but no one is quite sure how. The people we spoke to were philosophical. "Every ten years," one woman told us, "this country messes everything up. But then it will build things up again." Meanwhile, under a poster for a lost dog, a family of four settles down for another night on the street.