(Adds IMF statement)
BUENOS AIRES, Sept 12 (Reuters) - Labor unions and social groups blocked streets in downtown Buenos Aires on Wednesday to protest austerity measures proposed by the government and backed by the International Monetary Fund to reduce Argentina's debt.
Protesters are angry about the belt-tightening policies, which are cutting services to low-income Argentines already walloped by inflation of 31 percent and climbing.
But Argentine leader Mauricio Macri said he needs to carry out such measures to regain investors' confidence by reducing the country's spending.
The outlook for Latin America's third-biggest economy is grim, according to orthodox and left-leaning economists alike. Planned cuts to public utility subsidies, forcing Argentines to pay more for transportation and electricity, are expected to keep upward pressure on consumer prices for the rest of 2018.
"The day-to-day uncertainty is getting worse," said protester Gabriela Gil, a 49-year-old mother of five.
The year will close with inflation at more than 40 percent, according to economists' forecasts. Hardest hit are low-income families that spend a high proportion of their income on food.
"The poorest people in the country are on the verge of hunger," said Daniel Menendez, a spokesman for Barrios de Pie, one of the groups that helped organized the march.
Measures aimed at taming inflation, like the central bank's 60 percent monetary policy rate, have helped push the economy into recession by choking off credit. Stimulus spending that might pep up the economy would dash Macri's promise of bringing the primary fiscal deficit to zero next year. The previous 2019 deficit target was 1.3 percent of gross domestic product.
Economy Minister Nicolas Dujovne said earlier this month that it was weakness on the country's "fiscal flank" that prompted a run on the peso in August. The currency fell 26 percent last month and has lost more than half its value so far in 2018.
On Tuesday, the peso fell 1.4 percent to close at 38.5 per dollar.
Having signed a $50 billion standby financing deal with the IMF in June, the slide in the peso prompted Macri's administration to pledge deeper spending cuts to secure an early release of funds.
The revamped fiscal targets were being hammered out by government authorities and IMF staff in Buenos Aires, the Fund said in a statement on Wednesday. "Our common objective is to reach a rapid conclusion to these discussions so as to present a proposal to the IMF executive board," the statement said.
The targets will be incorporated into the 2019 budget bill that Macri is expected to send to Congress over the days ahead.
"What we are seeing in asset prices in Argentina is that people are not giving them the benefit of the doubt," Daniel Osorio, president of New York-based consultancy Andean Capital Advisors, said in a telephone interview.
With investors demanding that the government stand by its budget-cutting program, some economists say the bitter fiscal medicine called for by the IMF might prove worse than the recession and high inflation that are already ailing Argentina.
"The financial markets have closed for the country. Argentina's government is responding by attempting a much more drastic fiscal adjustment," said Martin Guzman, an economist at Columbia University Business School.
"My view is that such a measure will lead to another recession in 2019."
(Reporting by Hugh Bronstein; Additional reporting by Eliana Raszewski, Jorge Otaola, Scott Squires and Miguel Lobianco; Editing by Rosalba O'Brien and Lisa Shumaker)