By Nicolás Misculin
BUENOS AIRES (Reuters) - Argentina's Peronists are caught between a rock and a hard place after a crushing defeat in midterm congressional primaries on Sunday: shift to the center to win back crossover voters or double down on populist policies to fire up the base.
The Sunday vote https://www.reuters.com/world/americas/argentinas-peronists-under-pressure-after-primary-defeat-2021-09-13, effectively a dry run ahead of the Nov. 14 midterm that could swing the balance of power in Congress, saw the business-friendly opposition gain strongly against the center-left government, whose popularity has been battered by the pandemic.
With control of the legislature at stake, there is a chance the election loss could prompt the government to take short-term measures to revive its popularity ahead of the November ballot, opening spending taps to pump up growth at the risk of heating up already high inflation.
"There is a risk of radicalization after the results... not only in economic terms but also in political terms," said Gustavo Ber, economist at Estudio Ber in Buenos Aires.
Most analysts, however, said the government is more likely to moderate its position, taking on board the angry voice of the electorate, and potentially grappling with a weaker position in the legislature if it loses its Senate majority.
"If the electorate turns to the right, it makes no sense for the government to turn to the left," said political analyst Sergio Berensztein.
A government source told Reuters that there were discussions ongoing within the ruling Front for All Peronist coalition about the best way forward.
"This debate is taking place within the government. The government does not intend to radicalize, that would not be the way. What I do not know is if there is space for a new bet (to moderate)," the source said, asking not to be named.
Front for All won around 30% of Sunday's vote, versus some 38% for the center-right coalition Together for Change. It lost in its key stronghold of Buenos Aires province, which surrounds the capital.
If the results for the primaries are repeated in the November midterm vote, the ruling party would lose control of the Senate and its leading minority position in the lower Chamber of Deputies, analysts say.
President Alberto Fernandez will now face a tug-of-war within his own party. He represents the moderate wing of the Peronists, while a more militant wing is clustered around the vice president - and former two-term president - Cristina Fernandez de Kirchner.
Argentina's markets rose on Monday, cheering the election result as investors pinned hopes on a weakened government being forced to moderate its stance with an eye on presidential elections in 2023.
"In the short term there is the risk of a slight shift to more heterodox, interventionist and populist policies in an attempt to rebuild political support," Goldman Sachs analyst Alberto Ramos said in a note.
"But the authorities are likely also aware that a significant hardening of heterodox policies could further damage the economy and therefore fail to pay political dividends in 2023."
(Reporting by Nicolas Misculin; Additional reporting by Walter Bianchi, Jorge Otaola and Hernán Nessi; Editing by Adam Jourdan and Rosalba O'Brien)