* Gov't could use more reserves to pay debt next year
* State spending seen high ahead of October 2011 vote
* Opposition could block bill, 2010 budget may be extended
* Gov't has broad powers to expand, redirect spending (Adds details on increase in reserves, additional quotes)
By Hilary Burke and Luis Andres Henao
BUENOS AIRES, Sept 16 (Reuters) - Argentina plans to use several billion dollars more in central bank reserves to pay debt next year, letting President Cristina Fernandez sustain hefty social spending ahead of a presidential election.
The 2011 budget bill earmarks up to $7.5 billion in foreign reserves to repay private creditors, expanding a measure that ended in the ousting of the central bank president and sparked a political crisis. For details, see [ID:nN06209372]
Critics "said the central bank was going to go broke, but we have more reserves now than when this measure was taken ... reality has proven us right," Economy Minister Amado Boudou said after presenting the bill to Congress on Thursday.
Opposition lawmakers, who hold a majority, question the government's widely discredited inflation figures and want to regain control of spending ahead of next October's vote.
The budget foresees inflation of 8.4 percent by the end of 2011, which the opposition will cite to try to block the bill. Private estimates are two to three times higher.
"Once again the budget uses (underestimated) inflation to hide resources so the government can spend as it pleases during the presidential campaign," said opposition lawmaker Alfonso Prat Gay, a former central bank president.
Argentina's budgets in recent years have low-balled inflation, growth and revenue, allowing the government to spend "additional" income without congressional oversight.
This is the first budget the government will try to pass after losing its congressional majority in 2009.
South America's second-biggest economy is seen growing nearly 9 percent this year, but the government's budget puts next year's expansion at a conservative 4.3 percent. <--------------------------------------------------- For a graphic on the Argentine budget: http://graphics.thomsonreuters.com/F/09/AR_CPI0910.gif For a factbox on details of the budget see [ID:nN16110959] -------------------------------------------------------->
If talks on the budget deadlock, the 2010 budget will be automatically extended and the government will still have broad powers to redirect and expand spending.
MORE RESERVES ON HAND
The government wants access to $7.5 billion in reserves next year, up from $4.4 billion in 2010, because more debt owed to private creditors will come due.
A senior official at the Economy Ministry said the government will have to pay $2.2 billion in GDP warrants alone next year since red-hot growth in 2010 will boost the payout on those GDP-linked debt instruments.
"If market conditions or the costs that we face (to issue debt) stay the same as they are now, we want to give certainty to the market that financing is assured," the official said on condition of anonymity.
Boudou told Reuters Argentina will not have a financing gap next year and has no need to issue debt, though it could return to global markets if conditions were right. [ID:nN16102567]
Argentina had planned to tap international credit markets for the first time since a 2002 default by issuing global bonds in tandem with a $12.2 billion debt swap in June.
But the government delayed the issue after poor market conditions boosted the cost of the potential bond sale.
Ignacio Corsiglia, a trader at broker Corsiglia & Co, said using reserves to pay debt "rules out a default in Argentina."
Argentine bonds rose 0.7 percent on average in local trade. Volume was slim due to a strike by bank employees.
Goldman Sachs senior economist Alberto Ramos wrote in a research note that the move "release(s) other funds to finance current spending, which is already at a record high level."
The budget estimates total primary spending will jump 17 percent next year to 368.02 billion pesos ($91.89 billion), representing 22.75 percent of GDP.
Opposition politicians could question the budget outlook
for 4.3 percent growth in 2011, which is below the 6 percent
estimate by the deputy economy minister this month.
[ID:nN03150098]
>^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
For a TAKE-A-LOOK on the budget [ID:nN16117722]
For an INSTANT VIEW [ID:nN16221099]
($1=4.005 Argentine pesos)
(Additional reporting by Jorge Otaola, Karina Grazina and
Magdalena Morales; Editing by Dan Grebler)