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UPDATE 4-Fernandez coalition loses clout but keeps majority in midterm

Hugh Bronstein
Sunday, 27 Oct 2013 | 7:24 PM ET

BUENOS AIRES, Oct 27 (Reuters) - Argentine leader Cristina Fernandez's allies took a beating in Sunday's midterm election, shrinking her congressional majority, snuffing out chances of a constitutional change to allow her a third term and kicking off the contest to succeed her in 2015.

Voters chose half of the lower house of Congress and a third of the Senate in Sunday's midterm.

Re-elected in 2011 on promises of increasing state control in Latin America's No. 3 economy, Fernandez's political coattails were trimmed by inflation, clocked by private analysts at 25 percent, while heavy-handed currency controls and falling central bank reserves have dented confidence.

"Seven of every 10 votes cast today went against the government. This election was a triumph for the opposition," said local political analyst Rosendo Fraga.

Candidates sponsored by opposition leader Sergio Massa won the House of Deputies' contest by a 10-percentage-point margin in the key province of Buenos Aires, according to exit poll announced on local television.

Buenos Aires province is home to 40 percent of Argentina's population and most of the country's agricultural output.

The Buenos Aires loss was expected to shrink the majority that Fernandez's allies have in Congress to just a few votes.

"Our majority in the House and Senate will continue," Defense Minister Agustin Rossi told reporters.

Massa, the mayor of the affluent Buenos Aires town of Tigre, headed his own list of candidates for Congress and is seen as a possible, business-friendly presidential contender in 2015.

"Tomorrow, we start with a new political map," said Buenos Aires mayor Mauricio Macri, another possible presidential candidate who promises a shift toward market-friendly policies.

Other exit polls announced on television showed Fernandez's candidates losing in key provinces around the country.

Some legislators had said they wanted a constitutional amendment to allow the ailing president to run for a third term. But the poor showing by Fernandez's branch of the Peronist party in Sunday's mid-term dashed those hopes once and for all.

To push through the legislation, they would need two-thirds support in both houses. If the exit polls prove accurate, Fernandez would not come close to achieving that level of support for another run for the presidency.

Fernandez was unable to campaign for her congressional candidates since an Oct. 8 operation to remove blood that pooled on her brain after she fell and hurt her head in August. She is expected to continue convalescing for another few weeks.

The surgery marked the latest in a series of health issues for the 60-year-old leader, including low blood pressure and a thyroid tumor that also was surgically removed.

Speaking to local television, Fernandez's son, Maximo Kirchner, declined to speculate on when his mother would return to work. "She's OK. She's in a good mood," he said.

HIGH STAKES

As expected, Massa beat his rival, Martin Insaurralde, Fernandez's handpicked Buenos Aires candidate.

Massa - who vows to fight crime, combat inflation and improve farm profits - appeared well positioned to run for president. But Argentine history shows midterm victors are rarely able to sustain momentum and clinch the nomination.

A dark horse could appear within the next two years, as was the case with former President Carlos Menem, who burst onto the scene in 1989, and Nestor Kirchner in 2003.

Sunday was the third anniversary of the death of Kirchner, who was married to Fernandez, preceded her as president and set the tone for her policies.

At play in 2015 is policy in one of the world's top grains exporters as it struggles to keep up with rising world food demand and attract investment needed to exploit the vast Vaca Muerta shale oil and gas formation in Patagonia.

Argentina's peso weakened past 10 to the U.S. dollar in informal trade last week, widening its breach with the formal rate of 5.88 pesos per greenback. Central bank international reserves are at $34 billion, down from $43 billion in January.

But stocks and bonds have rallied on hopes of market-friendly policy changes ahead.

The blue-chip Merval stock index is up nearly 50 percent since the Aug. 12 midterm primary.

Sunday's vote also tested the support of presidential hopefuls Julio Cobos, a Radical Party member from Mendoza; Hermes Binner, a socialist from Santa Fe; and Buenos Aires Governor Daniel Scioli, an ally of the president despite his market-friendly views.