Oct. 25 (Bloomberg) -- Argentina's first lady, Senator Cristina Fernandez de Kirchner, stands to inherit her husband's office after this weekend's presidential elections -- and with it an economy plagued by rising prices and energy shortages.

As president, Fernandez, who leads by as much as 26 percentage points in polls, would confront inflation economists estimate at 20 percent and electricity supplies so tight that factories cut production in July.

Fernandez told supporters during the campaign, which ends today, that both problems will be solved by more investment, and pledged to maintain the policies of her husband, President Nestor Kirchner. But the 54-year-old senator won't be able to rely on his mix of price controls and public spending to sustain the 9 percent yearly growth of his four-year term, said Ricardo Amorim, chief Latin American economist at WestLB AG in New York.

``The consequence of Kirchner's policies has been to boost economic growth in the short-term at the expense of growth in the medium and longer term,'' Amorim said. ``Who's going to pay the bill? Very likely the next president: his wife.''

Investor confidence in Argentina is eroding as the government forces companies to hold down prices on products from shampoo to potatoes, and banks are pressed to cut interest rates below inflation. Kirchner's tactics extended to urging a boycott of Royal Dutch Shell Plc gas stations in 2005 to roll back a 4 percent increase in fuel prices.

Inflation Doubts

There's no sure way to tell how dire Argentina's inflation problem is: In January, Kirchner replaced the national statistics institute civil servants responsible for maintaining Argentina's consumer price index with political appointees. Presidential candidate Roberto Lavagna, Kirchner's economy minister until November 2005, says annual inflation in September was more than double the official rate of 8.6 percent.

As a result of skepticism about the official inflation rate, yields on Argentina's 5.83 percent inflation-linked peso bonds due December 2033 soared to 8 percent this month from 5.3 percent on Feb. 1.

The perceived risk of owning Argentine bonds has almost doubled this year, with the price for the country's credit- default swaps rising to 401 basis points from 203 basis points at the beginning of the year. That means it costs $401,000 to protect $10 million of Argentine debt. Pakistan, at 341 basis points, is considered safer, according to prices from London- based CMA Datavision.

Accommodating the Government

``The private sector has accommodated the government so far, but that's impacting their margins and making life difficult,'' said Dario Pedrajo, who manages $100 million at Kapax Investment Advisers LLC in Miami. ``The policies need to change, or a lot of people are going to go out of business.''

Fernandez, who would be the first woman elected president in Argentina, said little about her economic plans during her campaign, which ended tonight with an outdoor rally under rainy skies on the outskirts of Buenos Aires. Her campaign hasn't produced a platform, and her press office declined to make her or anyone else available for an interview.

``I wouldn't dare make any announcements before the people vote,'' she said when asked about her inflation policies during an interview on the Todo Noticias television channel last night.

An Oct. 12-18 poll by Ricardo Rouvier & Asociados showed Fernandez with 43 percent support for the Oct. 28 election; former Congresswoman Elisa Carrio was in second place with 16.8 percent. Under Argentine law, there's no runoff if the first- round leader either wins 45 percent of the vote or wins at least 40 percent of the vote with a 10-percentage-point lead over the next closest candidate.

Civil War

Kirchner, 57, took office as Argentina was starting to recover from its late-2001 financial meltdown, when a default on $95 billion of bonds led to violent street protests, attacks on banks and five presidents in two weeks. In 2002, the peso, which was pegged 1-to-1 to the dollar, declined 70 percent, unemployment peaked at 21.5 percent and the economy shrank 10.9 percent.

``In another country there could have been a civil war,'' Felipe Sola, governor of Buenos Aires province, said in an interview.

Under Kirchner, Argentina benefited from record prices for commodity exports including soy and wheat. He had the central bank sell pesos to keep Argentine products competitive, raised spending on public works and paid off a $9.5 billion debt to the International Monetary Fund. Unemployment fell to a 15-year low of 8.5 percent in this year's second quarter.

`Incapable'

Now, the deferred costs of some of these policies are surfacing. ``This is a government that doesn't recognize its own problems,'' said Senator Hilda Duhalde, 61, a former first lady whose husband Eduardo picked Kirchner to become president. ``It's been unable to take advantage of this extraordinary moment for Argentina. It's been incapable of managing.''

Investment in energy exploration and production all but halted after a freeze on electricity rates in 2002. Energy shortages this year forced factories to cut production.

Argentina remains blocked from directly tapping international credit markets: It hasn't settled lawsuits with holdouts from the 2005 debt restructuring who refused to accept 30 cents on the dollar. The terms the country offered were the harshest since at least World War II, according to Arturo Porzecanski, an international-finance professor at American University in Washington.

``It's going to be a lot tougher for Cristina,'' Pedrajo said. ``My wife would kill me if I handed her such a situation.''

To contact the reporter on this story: Bill Faries in Buenos Aires wfaries@bloomberg.net

Last Updated: October 25, 2007 18:46 EDT