AN ARGENTINE PRISON as the setting for a novel about the hollowness of Hollywood-inspired dreams? It makes more sense than might seem at first glance. Like their brethren in small town America, the inhabitants of the dreary villages that dot the Andes, the Pampas and the Amazon have come to rely on the movies for glimpses of a world more glamorous and beautiful than their own. The more bedazzled even forget who and where they are. Says Ziraldo Alves Pinto, one of Latin America's leading cartoonists and humorists: "When I was 12 years old I had seen so many variations on Gone With the Wind that I knew more about the American Civil War than the history of my own country."

Argentina's Manuel Puig, author of Betrayed by Rita Hayworth, Heartbreak Tango and The Buenos Aires Affair , is another who was bitten by the Hollywood bug at an early age and never fully recovered. After studying for a while at the Institute of Cinematography in Rome, he went to work for Air France In New York-where, as he recalls, his most memorable feat was selling a ticket to Greta Garbo. Kiss of the Spider Woman is his fourth novel in less than a decade, and in it he once again uses Latin America's obsession with the cinema as a device to expose all that is false, shallow and pretentious in Argentine society.

Molina and Valentin are cellmates in a Buenos Aires prison-and a mismatched pair of jailbirds if ever there were one. Molina, a homosexual serving eight years for "corruption of minors," sees life as an unending melodrama. His main interests, aside from the fashion magazine Claudia and romantic films from the '40s, are his ailing mother and a muscular soccer player-turned-waiter named Gabriel. Valentin, an arrogant student revolutionary being detained indefinitely for having incited an illegal strike at an auto plant, views the world through a Marxist prism. For him, everything boils down to class struggle and dialectics, with no room left for sentiment.

To pass the time and ease the boredom, Molina begins to describe for Valentin the plots, costumes and casts of his favorite movies-a motley collection of tearjerkers, thrillers, potboilers and Nazi propaganda films. At first, Valentin is sarcastic, mocking Molina's romantic sensibility. But soon he is lured into the web of fantasy and puts his texts aside. Contempt turns to comradeship and comradeship to love. All the while, Molina is being pressured by the warden to inform on his cellmate. Torn between his desire for a pardon and his wish to stay with the young activist, Molina-or "Carmen, like the one in Bizet," as he prefers to think of himself-tries in his inept way to string the authorities along.

Puig, as skillfull as any good Hollywood screenwriter, makes this Argentine odd couple both funny and affecting. Molina plays his role to the hilt:

"I'd rather be Christina of Sweden, since I'll end up a queen, no matter what," he minces. But later, when Valentin falls ill from the prison food, Molina talks the warden into sending out for "2 roast chickens, 4 baked apples, one pint egg salad...4 large pieces, assorted glazed fruits, 2 marble cakes, one stick butter, a jar of mayonnaise and a box of paper napkins." Valentin, in return, fondly nicknames his benefactor "the Spider Woman" and settles down to enjoy his part in "The Mystery of Cellblock Seven," as Molina comes to call their prison life together.

But once prison officials release Molina, hoping that he is carrying a message that will lead them to Valentin's guerrilla group, the plot turns from comedy to farce and Puig's wit turns mordant.

Molina is a victim of the frustrated dreams and illusions he has long cultivated-as is his country, which one was richer than the U.S. and harbored ambitions of becoming the colossus of the South. Argentina has historically refused to consider itself a part of Latin America, believing in its superiority to its neighbors because it is a piece of Europe transplanted intact to the New World. But it is also the country which fell deeply in love with Evita Peron-who had been, after all, an actress in dozens of weepy soap operas and it twice succumbed to the seductive promises of her husband Juan, an absurb tinhorn despot who seemed to have walked straight out of Chaplin's The Great Dictator .

Puigs understands the frustrated romanticism of Argentina only to well, and makes Molina a ccaricature of all of the country's pretensions to culture, elegance and refinement. And Puig also makes it clear that "the revolution" is just one more romantic illusion. Che Guevara, who was Argentine and not Cuban, and the tupamaros and montoneros , young intellectuals of Spanish surname and blood who maintain they are the heirs of the Indians in the struggle against imperialism, are also doomed dreamers.

Curiously, Argentines have been slow to see past the melodramatic pastiche Puig habitually constructs in his work and have consigned him to the category of second-rate sentimentalist. But from a distance it is much easier to see Puig for what he really is: the clown who is invited to the birthday party to make the children laugh but insists on puncturing all the balloons. CAPTION: Illustration, no caption, by John Ryan