Uncertainties remain after Argentina vote

BUENOS AIRES (Reuters) - President Cristina Fernandez was weakened in Sunday's mid-term elections when she lost control of the lower house of Congress, but uncertainties remain over her economic agenda for the rest of her term.

Fernandez and her husband former President Nestor Kirchner are known for unpredictable moves, like last year's surprise nationalization of the country's pension system.

Fernandez allies lost their majority in the lower house, and were close to losing control of the Senate, according to preliminary election returns early on Monday.

Most humiliating for the power couple, a slate of candidates led by Kirchner took second place in a high-profile congressional race in populous Buenos Aires province where he sought a resounding victory to shore up her administration.

Here are some possible implications of the outcome:

UNCERTAINTY PERSISTS

The new Congress will not be seated until December, giving Fernandez five months with a majority in both houses, which some economists and political analysts say she could use to increase state control over the economy.

If she insists on taking a hard line even after her allies' bad showing in the election, tensions with industry, agriculture and the opposition could rise, possibly sparking protests similar to road blocks by farmers last year.

Also, since the mid-term is seen as a primary election for the dominant but fractured Peronist party, it could be followed by intense political wrangling as different players jostle for positions with an eye on the 2011 presidential vote.

The most extreme critics of the Kirchners fear she will take drastic moves such as nationalizing a bank or forcing local banks to buy government paper to raise billions needed to pay principal and interest due this year and next.

But others believe the government will go in the other direction and make market friendly gestures to recover access to international markets, which has been limited by lawsuits by bondholders who did not accept a massive 2005 debt restructuring.

Kirchner struck a conciliatory tone when he conceded defeat early on Monday, saying "the important thing is to demonstrate maturity."

RETURN TO DEBT MARKETS

With the economy slowing, government revenue is also getting hit at a time of rising financing needs.

In order to return to markets, the government would have to restore credibility to the National Statistics Institute, which is widely believed to be underreporting inflation and poverty and overreporting growth and employment.

The government would have to make a global offer to sovereign bond holders who did not accept the 2005 restructuring, with a small sweetener to try to neutralize lawsuits from hold-outs.

Argentina would have to allow the International Monetary Fund, which the Kirchners blame for the 2001-2002 crisis, to evaluate the economy.

With the elections behind her Fernandez might have breathing room to take market friendly steps even though they would contradict her anti-IMF rhetoric.

FARM POLICY

Farm leaders elected to seats in Congress could form alliances with opposition lawmakers and push for tax cuts on grains exports, less state intervention in the grains market and new policies to boost beef and milk output.

Fernandez could renew stalled talks with farm leaders, although she has repeatedly ruled out cutting the controversial soy export taxes.

Protests by more hard-line farmers might erupt in the coming months if they see no possibility of a change in direction or a hardening of the government's line, but they would likely be more isolated and low key than last year.

RELATIONSHIP WITH BUSINESS LEADERS

With their power base among labor unions and the working class, mistrust of the Kirchners runs high in the business sector.

To placate suspicious business leaders -- who believe rightly or wrongly the government uses price controls and tax and regulatory investigation threats against them -- Fernandez would have to make significant overtures.