By Eliana Raszewski and Nicolás Misculin

BUENOS AIRES, Reuters – Argentina’s Peronist government coalition is on edge of political disaster. President Alberto Fernandez faces a struggle for control following the defeat of his center-left party by voters in bruising midterm elections. This has eroded his influence in Congress.

A mix of moderates and hard-left members around Vice President Cristina Fernandez de Kirchner form the party. Now, the party faces a dilemma. Can it give ground in order to cooperate with the opposition or swerve right?

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

Peronists lost their Senate majority on Sunday. This was the first since 1983. Many provinces voted strongly in favor of Fernandez’s government. Fernandez swept to the power in 2019, running on a centre-left platform.

This loss hampers the government’s ability in Congress to pass legislation, threatening plans to reform judicial procedures and complicating talks about a $45 billion agreement with International Monetary Fund. Lawmakers must approve this deal.

Alberto Ramos at Goldman Sachs (NYSE:) 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 in Congress means that the government will have to negotiate and engage with an opposition stronger and more energized, which could result in a chaotic and volatile process for policymaking.”

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 declined to mention that reducing public spending is something many believe necessary in difficult economic circumstances.

“It’s necessary to put the state accounts in order. But it shouldn’t be at the price of spending adjustments. “The adjustment tried in Argentina repeatedly and only made inequality worse,” he stated.

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Governments are likely to pay a high price for their midterm loss.

Carlos Fara, analyst, stated, “They will begin to depend upon negotiations with potential allies and, when you enter these types of discussions, they start out expensive.”

There are many crises that the government must address.

Over 50% of the world’s population is inflation, while 40% are poor. The peso currency is traded at around 200 dollars per dollar on informal markets, which have flourished under capital controls. This is double the official rate at 100 pesos per $1.

Some predict a quicker devaluation to help bring the currencies closer together, and also to keep pace with rising prices.

Roberto Geretto (an economist at Fundcorp) stated that “in December, or slightly earlier, the pace for the official devaluation will accelerate to stop the dollar from lagging behind inflation.”

Discussions with IMF about a new deal are also dragging on amid divisions inside the government over striking an agreement with lender. This is despite the fact that many blame Argentina for escalating economic crises in this grains-producing nation.

Julio Burdman is a political analyst at the Electoral Observatory. He said that however, the opposition would most likely accept the agreement.

He stated that he believes the IMF agreement does not have to be influenced by politics. There is nobody interested in Argentina signing an agreement.