Analysis-'Drained of power': Argentina's Peronists face identity crisis after midterm rout

[November 15, 2021]  By Eliana Raszewski and Nicolás Misculin

BUENOS AIRES (Reuters) - Argentina's Peronist ruling coalition is teetering on the brink of political crisis, with President Alberto Fernandez facing a fight for control after voters abandoned his center-left party in bruising midterm elections, sapping his power in Congress.

The party, a mix of moderates allied with the president and a powerful hard-left faction around Vice President Cristina Fernandez de Kirchner, now has a dilemma: concede ground to work with the opposition, swerve left - or split down the middle.

"The government has serious problems. It is a president who is totally drained of power," said Mariel Fornoni from political consultancy Management & Fit. "The coalition is broken."

The Sunday vote saw the Peronists lose their majority in the Senate for the first time since 1983, with a number of provinces swinging sharply away from the government of Fernandez, who swept to power in 2019 on a center-left platform.

The loss hobbles his government's ability to push through legislation in Congress, hitting plans for judicial reform and adding complexity to talks over a new $45 billion deal with the International Monetary Fund, which needs lawmaker approval.

Alberto Ramos at Goldman Sachs said in a note that the defeat could leave the ruling party weakened and that "internal dissent over policy direction could grow further," potentially hurting moderate voices like Economy Minister Martín Guzmán.

"This backdrop raises the risk of a (even) more heterodox/interventionist policy mix that could further complicate the already difficult negotiation of an IMF program," he said.

"Losing control of Congress implies the government would have to negotiate with a stronger and re-energized opposition that could lead to a noisy and volatile policy making process."

In a message recorded after the defeat, President Fernández struck a moderate tone, saying he would call for dialogue with the opposition, redouble efforts to solve the IMF debt, put a economic plan to Congress and take aim at inflation.

However, he played down suggestions of reining in public spending, that many see as vital amid tough economic conditions.

"It is necessary to get the state accounts in order, but never at the cost of an adjustment in spending. The adjustment was tried repeatedly in Argentina and only deepened inequality and poverty," he said.

President of Argentina Alberto Fernandez speaks accompanied by President of the Chamber of Deputies Sergio Massa, Gisela Marziotta, Leandro Santoro, Governor of Buenos Aires Axel Kicillof, Maximo Kirchner and Victoria Tolosa Paz during an event after midterm elections in Buenos Aires, Argentina, November 14, 2021. REUTERS/Agustin Marcarian

POLITICAL COST

The midterm loss is likely to come at a price for the government.

"They will start to depend on negotiations with possible allies and, and when you enter into these types of talks, they start to come out expensive," said analyst Carlos Fara.

The government has a long list of crises to solve.

Inflation is running at over 50% annually, poverty is above 40%, and the peso currency trades at some 200 per dollar in informal markets that have blossomed amid capital controls, double the official exchange rate of 100 pesos per dollar.

Some foresee a faster devaluation of the currency to bring the two rates closer together and to match rising prices.

"In December or a bit earlier, the pace of the official devaluation is going to accelerate to prevent the dollar from lagging too far behind inflation," said Roberto Geretto, an economist at Fundcorp.

Talks with the IMF over a new deal have also dragged, amid divisions within the government over striking an accord with the lender, which many Argentine blame for worsening previous economic crises in the grains-producing country.

Julio Burdman, a political analyst from the Electoral Observatory, said however the opposition would likely get on board with the deal.

"I think the agreement with the IMF does not depend on politics," he said. "There is no one interested in Argentina not signing an agreement."

(Reporting by Nicolás Misculin and Eliana Raszewski; Editing by Adam Jourdan, Robert Birsel)

[© 2021 Thomson Reuters. All rights reserved.]

Copyright 2021 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.