July 8 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner shuffled her Cabinet last night, replacing the economy minister and Cabinet chief, following her ruling coalition’s defeat in mid-term elections.

Economy Minister Carlos Fernandez will be replaced by Amado Boudou, the head of the social security agency. Justice Minister Anibal Fernandez will replace Cabinet Chief Sergio Massa. The new ministers will be sworn in today at 6 p.m. New York time.

President Fernandez made the changes after the government, weakened by a slowing economy, clashes with farmers over agriculture policy and a failure to control crime, lost its majority in elections on June 28. Health Minister Graciela Ocana and Transport Secretary Ricardo Jaime stepped down last week.

“The appointments of the new ministers, officials who were already in the government, show that there won’t be changes in economic policies,” said Carola Sandy, a Latin America economist at Credit Suisse Group AG in New York. “Markets will be disappointed because some investors were expecting deep changes as a reaction to the defeat.”

Argentine bonds fell this morning, with the price on the country’s benchmark 8.28 percent dollar bond due in 2033 declining 1.5 cents to 51.5 at 10:56 a.m. New York time. The bond’s yield rose 38 basis points to 15.76 percent. Argentina’s Merval stock index fell 1.5 percent to 1,487.32.

Boudou, 46, takes office as South America’s second-biggest economy, which has expanded at least 6.8 percent each of the past six years, is poised to shrink 3.3 percent in 2009, according to the median estimate of six economists in a Bloomberg survey.

Pension Fund

Boudou oversaw the social security agency when Fernandez backed legislation last year nationalizing about $24 billion in private pension funds, which the government then tapped to help buttress the economy. He has a degree in economics from the National University of Mar del Plata and a doctorate in economics from the Argentine Center for Macroeconomics Studies in Buenos Aires.

“Argentina’s economy will grow more in coming months and we are going to grow strongly again next year,” Boudou said in an interview with Buenos Aires-based newspaper Pagina/12.

Calmer Markets

The government has to wait until “markets calm down” to negotiate with holders of about $20 billion in defaulted bonds, Boudou told the newspaper.

Argentina paid bondholders about 30 cents on the dollar in the restructuring in 2005, four years after a $95 billion debt default that was the biggest ever by a sovereign.

Lawsuits from some investors who rejected the 2005 debt restructuring have prevented Argentina from selling debt abroad to meet financing needs. The administration has instead borrowed from government agencies.

Julio Alak, the president of the country’s flagship airline, Aerolineas Argentinas SA, will be the country’s new Justice Minister.

Fernandez, who succeeded her husband, Nestor Kirchner, in December 2007, didn’t refer to the cabinet changes in a speech to military leaders following the announcement last night. She has vowed that the economy won’t fall into recession this year.

In last month’s mid-term election, a slate of candidates for the lower house led by Kirchner finished second in the province of Buenos Aires. Pro-government candidates also lost in the populous provinces of Mendoza and Cordoba and in Buenos Aires city. The defeat will cost the government majority control of Congress when the new lawmakers take office in December.

‘Political Clout’

The results “showed that the political clout of the Kirchner couple has been significantly eroded,” Alberto Ramos, a Latin American economist at Goldman Sachs Group Inc. wrote in a June 29 report. The election will leave the government debilitated over the final two years of the president’s term, he wrote.

Support for Fernandez’s government began falling last year as independent analysts, including Kirchner’s former Economy Minister Roberto Lavagna, said inflation was surging at more than twice the pace reported by the national statistics agency. It reached its nadir after she proposed raising export taxes on goods including soybeans and wheat, prompting four months of road blockades and protests across the country.

“If there wasn’t anything to change, we would have won,” Anibal Fernandez told reporters this morning in Buenos Aires.

The farm tax plan was defeated in Congress with the support of Vice President Julio Cobos, who voted against the proposal in the Senate. Cobos, who said he may run for president in 2011, backed his own candidates opposed to Fernandez’s Victory Front coalition in the mid-term races.

Jorge Giacobbe, who runs the Jorge Giacobbe & Asociados polling company in Buenos Aires, said last night’s Cabinet shuffle didn’t mean Fernandez was planning to alter course.

“This is a change of names but not of policies,” said Giacobbe. “In fact, this is a new effort to maintain current policies.”

To contact the reporters on this story: Bill Faries in Buenos Aires wfaries@bloomberg.net; Eliana Raszewski in Buenos Aires at eraszewski@bloomberg.net

Last Updated: July 8, 2009 11:09 EDT