June 29 (Bloomberg) -- Argentine President Cristina Fernandez de Kirchner lost power in Congress after voters angry at her handling of a farm strike, crime and a slowing economy favored opposition candidates in mid-term elections yesterday.

Fernandez acknowledged that a slate of candidates for the lower house led by her husband, former President Nestor Kirchner, was defeated in the bellwether province of Buenos Aires. She told reporters today that the government will have 35 seats in the 72-member senate and 107 lawmakers in the 257- member lower house, not counting allies from other blocs.

Fernandez, 56, relied on her coalition’s control of Congress to back an agenda that included nationalizing $24 billion in private pension funds and the country’s flagship airline, Aerolineas Argentinas SA. She angered many supporters when she tried to raise farm export taxes last year, provoking four months of road blockades and protests.

“We’ve said a number of times that we are going to change history, and that day is today,” Buenos Aires province opposition leader Francisco de Narvaez said at a rally last night. “This is a moment to unite, not divide, a moment to join together, not confront.”

Fernandez said during an afternoon news conference that she isn’t planning on shaking up her cabinet following the “narrow” defeat, beyond appointing a new health minister to replace Graciela Ocana, who resigned this morning.

“I don’t see a reason to make a change in the cabinet because of the election results,” Fernandez said.

Kirchner Resignation

Kirchner, 59, said in a televised announcement that he is resigning as head of the Peronist party.

“In a democracy, you win and you lose,” Kirchner said at a post-election rally in Buenos Aires. “This was a very close election. We lost by a little bit.”

De Narvaez’s slate in Buenos Aires had about 35 percent support compared with Kirchner’s 32 percent, with 97 percent of the polling stations reporting, the interior ministry said on its Web site. The ruling coalition was also trailing in populous provinces including Cordoba and Mendoza and in Buenos Aires city. In Kirchner’s home province of Santa Cruz, government candidates were losing by 1,700 votes with less than one percent of polling stations still to count.

In Argentina, the number of candidates who win on a slate is proportional to the votes received, meaning that Kirchner and some candidates on his list won seats in Congress.

Bonds Rise

Argentine bonds climbed on speculation that Fernandez will seek an accord with the International Monetary Fund, formed after World War II to help stabilize the currencies and economies of member countries. The yield on the country’s benchmark 8.28 percent dollar bonds due in 2033 dropped 173 basis points, or 1.73 percent, to 15.38 percent. The benchmark Merval stock index rose 0.6 percent to 1,589.30.

Fernandez, who succeeded her husband in December 2007, got Congress to move up yesterday’s election by four months, arguing it would be “suicidal” to let the campaign drag on while “the world is crumbling into pieces” as a result of the global economic crisis. Opposition leaders said the intent was to hold the vote before Argentines felt the full effects of the crisis.

‘Challenging Reality’

“Clearly, the Kirchners will have to face a very challenging reality after the new Congress is in place in December 2009,” Guillermo Mondino and Sebastian Vargas from Barclays Capital Research wrote in an e-mailed report. The “substantial defeat” by Kirchner is positive for the currency and credit, they said.

Kirchner said during the campaign that the country’s economic growth since a 2001 financial crisis was at risk in the mid-term election. He reminded voters that in 2001, when Argentina defaulted on $95 billion of debt and restricted bank withdrawals, then-President Fernando de la Rua was forced to resign amid riots and looting. The following year, the economy shrank almost 11 percent.

“This is not just another legislative election, there are two different models for the country at stake,” Kirchner said at a rally on June 17. “We don’t want more frozen bank accounts, more financial instability, more unemployed people, more broken industries. This economic model should be a breaking point between the old Argentina and the new one.”

Farm Strike

The farm strike did more damage to Fernandez than the country’s slowing economy or rising concerns about crime, an issue that de Narvaez campaigned on, pollster Ricardo Rouvier said in a June 24 interview.

Economic growth in Argentina slowed last year to 6.8 percent from an annual average of 8.8 percent during Kirchner’s four-year term. Inflation quickened to what private economists such as Jose Luis Blanco, at Tendencias Economicas research, estimate at 22 percent.

Argentina’s dependence on agricultural exports such as soybeans and wheat has hurt it over the past year as international prices fell from record highs and the global economic crisis hit. Exports fell 18 percent to $5.1 billion in May from a year earlier, while imports declined 49 percent to $2.7 billion.

Fernandez has vowed that the economy will continue to grow even as organizations including the IMF predict a recession. The economy will shrink three percent this year, according to the median estimate of seven economists surveyed by Bloomberg.

Boost Spending

Neil Shearing, an emerging markets economist at Capital Economics in London, said the government may react to its defeat by boosting spending on social programs in an effort to build support ahead of the 2011 presidential elections.

“The government will be desperately scrambling for a way to regain authority and will probably try to do that through populist measures,” Shearing said in a telephone interview.

About 28 million people were eligible to vote in yesterday’s election, according to the Interior Ministry. Half the 257-seat lower house and a third of the 72-member Senate were up for grabs. The new lawmakers will take their seats in December.

“What we are hearing from all over the country is support for change,” said Buenos Aires mayor Mauricio Macri, whose Union Pro coalition was leading in the capital. “To the president, I say to you with total respect that I hope you’ve heard the message Argentina sent you.”

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

Last Updated: June 29, 2009 18:42 EDT