| BUENOS AIRES
BUENOS AIRES Signs of strain in Argentina's prolonged economic boom point to a turbulent second term for President Cristina Fernandez in the likely event she wins re-election in October.
Fernandez has a lead of at least 20 points over opposition challengers in most polls. That suggests she could secure another four-year term in a first round on October 23 as voters credit her with one of Latin America's fastest rates of economic growth.
In a second term, loose fiscal and monetary policies that boosted her popularity may prove harder to defend if anything obscures a current rosy outlook of high grains prices and strong demand for cars from neighboring Brazil, analysts say.
"Economic policy seems to be on autopilot ... (but) the bumpy flight we expect calls for the pilot to return to her seat," Barclays Capital said in a report published this week, forecasting slower growth of 4.3 percent next year compared with their 7 percent outlook for 2011.
One of Fernandez's biggest headaches if re-elected could be maintaining the competitiveness of Argentine industry, which has enjoyed a renaissance since a sharp currency devaluation during the country's 2001-02 economic meltdown.
Like her late husband and predecessor, former President Nestor Kirchner, Fernandez has pursued a managed-float exchange rate policy, using a controlled depreciation of the peso as her principal tool to keep exports competitive.
Pressure could grow from business leaders and farmers for a weaker peso given annual inflation estimated privately at more than 20 percent.
"Your competitiveness is being eaten away in huge chunks," said Boris Segura, Latin America strategist at Nomura Securities International.
Private sector analysts put 12-month inflation through May at 23.5 percent, more than twice the 9.7 percent reported by the widely discredited INDEC state statistics agency.
The strength of Brazil's real currency -- the destination for some 80 percent of Argentine automobile exports -- has shielded Argentine industry in recent years, but inflation is gradually eroding that advantage.
"If Brazil ends up depreciating that would clearly be complicated for us because it's such an important trade partner," said Nadin Arganaraz, president of the private Argentine Institute of Fiscal Analysis.
Goldman Sachs economist Alberto Ramos warned that eroding competitiveness "could generate a hard, rather than a soft landing of the economy in 2012" if it is mismanaged.
Fernandez has stoked growth that clocked 9.2 percent last year, encouraging a consumer boom with public spending growing by about 30 percent annually and money supply growth of almost 38 percent year-on-year in May.
She rejects orthodox monetary policies to cool the economy, continuing to use central bank reserves to pay public debt and borrow heavily from the ANSES pensions agency.
Many economists say she could be forced to make adjustments in 2012, even if few think Fernandez will impose major changes to the pro-growth policy mix that has contributed to her approval ratings of more than 50 percent.
At the moment, surging tax revenue is keeping pace with state spending. Any slowdown or weaker prices for soy -- which accounts for about a quarter of Argentine exports -- could force belt-tightening.
One obvious target would be multibillion-dollar subsidies on everything from bus tickets to gas bills, though she might fear paying a steep political price.
"Subsidies must be reduced for people with higher purchasing power," Arganaraz said, estimating the cost of this year's subsidies alone at about $17.5 billion.
Even if economic clouds stay at a distance, Fernandez is likely to face power struggles within the famously fractious Peronist party should she win a second term, especially if her victory were less comfortable than polls currently suggest.
Under the Argentine constitution, she will not be able to seek re-election in 2015. She has no clear successor.
"She's going to have an internal struggle from day one, or even sooner," said political analyst James Neilson, who is generally critical of the government.
Another concern for Argentina's next president will be the deterioration of the balance of payments amid surging import growth and persistent capital flight.
Argentina's current account balance of payments went deeper into deficit in the first quarter, widening to $510 million from $366 million a year earlier.
Some analysts say that could encourage the next government to tighten capital controls and impose more of the import restrictions that have irked some business leaders and strained ties with leading trade partners, Brazil and China.
"A victory will reinforce within government the sense that the current policies are appropriate," Eurasia Group analyst Daniel Kerner wrote on Wednesday.
"This means economic distortions such as inflation, fiscal accounts and a deterioration of the external balance are likely to worsen, and the government is likely to respond with further pressures on the private sector."
(Additional reporting and Writing by Helen Popper; Editing by Andrew Hay)