The center-left coalition of Argentine President Alberto Fernández has pledged to seek cooperation with the opposition and present a new economic program in the hope of reaching an agreement with the IMF, after his Peronist party suffered a heavy setback in the mid-term elections.

Voters punished the ruling Peronist Party for runaway inflation and rising poverty in midterm polls on Sunday, where half of the lower house and one-third of the Senate were running for election.

Together for Change, the opposition’s conservative coalition led narrowly in six of eight key senatorial races, putting the Peronists on the verge of losing their Senate majority for the first time since the country returned to democracy in 1983. This included clear victories in a major contest for the lower house in the province of Buenos Aires, home to nearly 40% of the electorate and a Peronist stronghold.

Following the results, Fernández pledged to “seek dialogue” with the opposition, the clearest sign to date of how the president plans to respond to his party’s defeat. In a televised address, he said he planned to present an economic plan to Congress during the first week of December and strike a “lasting” deal with the IMF on the rescheduling of $ 44 billion in debt. , most of which will expire next year and in 2023.

“In this new phase, we will intensify our efforts to reach a lasting agreement with the IMF. We must eliminate the uncertainties that accompany this type of unsustainable debt, ”said Fernández.

The markets welcomed the prospect of a greater role for the opposition in limiting the power of the coalition. Dollar-denominated bonds due 2035 rose 0.7 cents to about 31 cents on the dollar on Monday, their biggest gain since the day after the primary election held on September 12.

“Peronism is facing something entirely new: it has lost the quorum in the chamber and in the congress,” Sergio Berensztein, a political consultant, told the Financial Times in Buenos Aires. With a poor performance in the mid-term, internal divisions are expected to deepen within the Peronist party, between a mix of moderates aligned with the president and a radical wing led by Cristina Fernández de Kirchner, the vice-president.

Tensions within the ruling Peronist bloc erupted after the September primary polls, when the opposition defeated the government by 9 percentage points. In response, the government made new cabinet appointments that suggested Fernández had ceded more ground to his powerful deputy.

Fernández de Kirchner then published an open letter accusing the president’s economic policies of the “political catastrophe” of the primaries and demanding changes.

Fernández de Kirchner, an imposing Peronist figure who served as president from 2007 to 2015, was notably absent on Sunday evening. She announced she would not stand for health reasons after the first exit polls showed signs of a center-left defeat, including in Santa Cruz province, the political stronghold from his family.

The government now faces a dilemma: work with the opposition to pass laws and make important appointments, including within the judiciary, or become more radicalized.

Alberto Ramos, head of Latin American economics at Goldman Sachs, said that “internal dissent over political direction could grow” and that a weakened tenure increases the risk of “more populist short-term policies,” such that tightening government controls on the economy and insisting that the IMF give in to negotiations to repay the billions of dollars from its record-breaking bailout.

“A more market-friendly composition of Congress could lead to more effective checks and balances and, ultimately, political regime change in 2023,” Ramos added. However, “macroeconomic and financial volatility is expected to remain high,” he said, given the deep imbalances Argentina’s economy was facing, such as high state subsidies and a board-funded budget deficit. to tickets.

Midterms are seen as a first indication of the strength of the opposition as it prepares for a presidential race in 2023.

The dire state of the economy has also weakened the two-party system and led to increased support for the more extreme candidates. Inflation in Argentina is at an annual rate of 52.1%, according to the latest official data, and 40.6% of people were living in poverty in the first half of 2021, up from 35% when Fernández took office.

Javier Milei, a 51-year-old outsider, won a seat in Congress with 17% of the vote. It was one of two seats in Congress his Freedom Moves Forward coalition won in Sunday’s election.

Milei chose a famous concert hall on Sunday to welcome thousands of his supporters when the results were announced. Milei’s libertarian platform includes the abolition of the central bank, free love, and the breakdown of the “caste system” in Argentine politics.

“Help me change this country,” he called from the main stage to loud applause at Luna Park Stadium. The allies of Horacio Rodríguez Larreta, the popular mayor of the city of Buenos Aires, have won races in the capital and surrounding province of Buenos Aires which he hopes will make him the favorite to lead the opposition. in 2023.

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