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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 party in bruising midterm elections, sapping his power in Congress.
The party, a mix of center-left 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 https://www.reuters.com/world/americas/argentines-vote-midterm-trial-by-fire-president-fernandez-2021-11-14 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.
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 (NYSE:GS) said in a note that the defeat could leave the ruling party weakened and that "internal dissent over policy direction could grow further," potentially impacting moderate voices like Economy Minister Martin Guzman.
"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," he said.
In a message recorded after the defeat, President Fernandez 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.
The IMF said through a spokesman that they "continue to work" on a plan that tackles "Argentina's most pressing economic and social challenges, including high inflation, which disproportionately hurts the most vulnerable."
POLITICAL COST
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. Many Argentines blame the lender for worsening previous economic crises.
Julio Burdman, a political analyst from the Electoral Observatory, said, however, that 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."