Calderon's party loses Congress vote in Mexico

By Alistair Bell

MEXICO CITY (Reuters) - Mexican voters punished President Felipe Calderon on Sunday for a deep recession and rampant crime, dealing defeat to the ruling party in mid-term congressional elections.

The setback for the ruling National Action Party, or PAN, complicates Calderon's attempts to push economic reforms through the lower house of Congress where he needs support from the opposition.

Mexico's economy is due to shrink more than 6 percent this year mostly due to the downturn in the United States while oil output, long a pillar of public finances, is falling fast.

Calderon, an ally of U.S. President Barack Obama in the fight against Mexican drug cartels, called on Congress to work with him.

"Rivalry must be left behind and now we must concentrate our efforts on finding common ground to achieve the agreements the country needs to recover economic growth, job creation and public safety," Calderon said in an address to the nation.

The result raises the specter of Calderon, a determined conservative, becoming a lame duck president but the opposition has signaled it might help advance some kind of economic reform agenda.

Calderon's party admitted losing to the Institutional Revolutionary Party, or PRI, which led by almost 9 percentage points with votes counted from 60 percent of polling stations.

The election was a clear victory for a newly resurgent PRI, which ruled Mexico for most of the 20th century until President Vicente Fox ousted it in elections nine years ago.

The PRI will be the biggest party in the lower house of Congress where all 500 seats were up for grabs on Sunday and is eyeing a comeback at presidential elections in 2012.

The PAN has failed to create jobs, forcing millions to cross the U.S. border illegally in search of work. Robberies, kidnappings and muggings are common in Mexican cities.

"Calderon is a trickster. He promised jobs and the truth is that many people are out of work," said student Roxana Milan, 25.

ECONOMIC REFORMS

Mexico is a top U.S. trading partner and exports everything from oil and cars to avocados and strawberries.

The president's approval ratings are high and voters generally support his war against drug cartels. More than 12,300 people have died since he dispatched the army to battle drug gangs three years ago but Congress has not played a major role in the fight.

Calderon wants to overhaul the energy sector to allow more private investment in the search for oil in deep waters of the Gulf of Mexico. He also seeks to reform the tax system and labor laws.