By Hilary Burke
BUENOS AIRES, April 24 (Reuters) - At a new market in a tough suburb of Buenos Aires, an Argentine flag emblazoned with a giant shopping cart advertises cheap prices for everything from sausages to detergent.
The so-called 'Argentine Market,' which was organized by pro-government activists, workers' cooperatives and local entrepreneurs who claim to cut out 'parasitic' middlemen. They opened a first outlet last month and plan to expand in May.
The market is just one of many palliative measures and quick fixes being taken by President Cristina Fernandez and her supporters to hold Latin America's No. 3 economy together, and keep Argentine consumers as happy as possible, ahead of mid-term elections in October.
These steps are likely to succeed in the short term and improve Fernandez's chances of maintaining control of Congress. But they do little to solve underlying problems such as the swift devaluation of Argentina's peso on the black market, declining international reserves, or fears that a U.S. court case could prompt a partial debt default.
Argentina's economy slowed sharply last year but inflation still hovers near 25 percent. The government has reacted by reviving agreements, dormant for years, under which supermarkets freeze prices.
Officials also capped fuel prices for the six months to October and a government proposal to launch a new, cheap alternative credit card pushed banks into offering discounts and lowering the interest rates they charge on credit card debt.
Deeper economic distortions continue to plague businesses, however, especially the small- and medium-sized companies responsible for about 40 percent of Argentina's gross domestic product. Several economists recently lowered their GDP forecasts for this year, with some now seeing just 1 percent growth or so.
One Argentine who owns a real estate company, and who declined to speak on the record because he fears retribution for admitting he buys dollars illegally, complained Fernandez is relying on 'short-term patches that are going to explode in the government's hands.'
The man took out a loan in dollars in 2011 to finance a private housing development. That debt has more than doubled since the government virtually banned foreign currency purchases and the black-market price for dollars surged.
But he said he cannot raise property values much or he will price himself out of business.
Asked how this can be sustained, he said: 'By losing money.'
An estimated 1 million Argentines marched last week in one of the biggest anti-government protests in years, highlighting public anger over a deteriorating economy and Fernandez's drive to reform the media and courts.
A fiery, center-left leader, Fernandez uses heavy spending to stoke consumer demand and fuel economic growth, at the cost of high inflation. Her administration also controls capital flows and curbs imports to insulate the economy.
She rarely utters the word 'inflation' and official price data showing a roughly 11 percent annual increase is widely discredited. Argentina faces sanctions from the International Monetary Fund over its dodgy data, which could include eventual expulsion from the organization.
After growth fell to just 1.9 percent last year, many analysts think government policies are losing effectiveness. It is getting harder for companies to keep raising wages above inflation, consumer spending growth is slowing, and the government's fiscal deficit is widening.
When the economy was still booming in 2011, Fernandez easily won re-election and regained control of Congress. But the legislative elections in October will test that.
The president's approval ratings have fallen sharply since reaching 59.1 percent in February 2012. A poll last month by Management & Fit showed her positive image rose slightly to 34 percent but that her negative rating was still 39 percent.
Inflation ranks second among voter concerns behind crime, and nearly 55 percent of poll respondents said they believe the economic situation will worsen in coming months.
The price-freeze accords were launched in this context. But Deputy Secretary for Consumer Defense Maria Lucila Colombo said: 'It's not that we have an inflation problem ... (these measures) help protect jobs and the purchasing power of wages.'
In fact, the price accords have slowed the pace of inflation, official and private figures show, which could help temper worker demands during annual salary negotiations.
In addition to freezing prices, the government last month raised a tax on foreign travel packages sold in Argentina and credit card use abroad to boost revenue and keep dollars at home. It also created an amnesty plan to bulk up state coffers.
A government source who spoke on condition of anonymity said the measures were aimed mainly at protecting the poor.
'We're seeking to avert increases in food prices because we know the impact this has on the social sector at the center of this (economic) model,' the government official said. 'In the same way, controls by the AFIP tax agency seek to keep people from spending dollars that are valuable for economic policy.'
The currency controls have pushed middle-class Argentines, who tend to save in dollars due to past devaluations, to buy greenbacks on the black market.
The gap between the official exchange rate and the black-market rate widened during the Southern Hemisphere vacation season, and now stands near 70 percent. The interbank peso trades at around 5.17 per dollar while the parallel rate, as measured by Reuters, is about 8.82.
Speculation is mounting that the government could allow a faster depreciation of the tightly controlled peso currency after the October elections, or could even devalue it. This has prompted some farmers to delay soybean sales and creates a similar wait-and-see logic in other industries.
'Today's (exchange rate) spread hurts the real economy. It discourages dollar sales as people wait for a devaluation and means there's less investment and less job creation,' said Ricardo Delgado, an economist at Analytica consulting group.
The central bank has responded to the dollar scarcity by selling its own international reserves on the local foreign-exchange market, depleting the funds that the government uses to repay private creditors.
Last week, the central bank's reserves fell below $40 billion for the first time in nearly six years.
In practice, the economy is operating with multiple exchange rates. There is the official rate for imports and other select transactions, the 'tourism' rate for people who use their credit cards abroad, and the black-market rate.
Federico Thomsen, an Argentine economist and political analyst, dismissed speculation that a formal multiple exchange rate regime could be introduced after October's elections.
'That's the kind of radical change that Cristina hates to make because supposedly the model is perfect, right? So big changes are undesirable,' Thomsen said.
(Additional reporting by Guido Nejamkis; Editing by Brian Winter and Kieran Murray) Keywords: ARGENTINA ECONOMY/
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