By Leila Miller and Lucinda Elliott
BUENOS AIRES (Reuters) -Argentine President Javier Milei's libertarian alliance made strong gains in Sunday's midterm elections, but he now faces the challenge of showing he can build a coalition to push through investor-desired reforms, analysts and lawmakers say.
Sunday's vote should transform La Libertad Avanza (LLA), Milei's small minority party, into a powerful bloc capable of defending presidential vetoes to control government spending from congressional overrides
led by the leftist Peronist opposition, who say that Milei's free-market policies hurt Argentina's local production. They have rallied against his austerity measures, which have reduced retiree pensions and funding for public universities.
But Milei must also now recruit allies to back significant policy changes, including tax and labor reforms he hopes to push through. Milei's party will remain short of a majority in both houses once new lawmakers are sworn in on December 10.
In his victory speech, Milei voiced a deeper willingness to form partnerships. But the overtures from a politician long known as a renegade who prefers to blaze his own trail have been met with caution by lawmakers from outside his party.
"It depends on how he uses his success," Pablo Yedlin, a member of Congress' lower house for the Peronist opposition from the province of Tucuman, told Reuters. "If he uses this success to generate consensus, to put us in agreement on what the provinces and Argentines need, it would be a profound change in the politics of this government and welcomed."
Future partnerships - including with centrist and provincial parties such as the center-right PRO led by former President Mauricio Macri - will be crucial, analysts said. Combined, PRO and LLA hold 104 seats in the lower house of Congress, just shy of the 129 needed for a simple majority.
That alliance could be a "workable but fragile vehicle for reform," said Mariano Machado of risk consultancy Verisk Maplecroft, as long as personal rivalries and regional negotiations don't disrupt unity.
Santiago Pauli, a LLA deputy from the province of Tierra del Fuego, echoed this sentiment, saying that "to do complex and deep reforms we need support." However, he drew a firm line at fiscal discipline, warning against any compromise that would jeopardize Argentina's hard-won budget surplus, the first in more than a decade.
"That is the limit. Everything else we can talk about," Pauli told Reuters.
In the coming weeks, public attention will turn to the president's proposed cabinet shake-up before December 10, where he has signaled moves aimed at smoothing negotiations in both chambers.
Still, skepticism lingers. Francisco Sanchez, a former PRO deputy who briefly served as Secretary of Worship - which handles government relations with the Vatican and other religions - in Milei's cabinet before resigning for personal reasons, questioned the president's capacity for consensus-building.
"He is unlikely to budge on core issues such as fiscal austerity, state reform, and economic deregulation," Sanchez said. "He must prove he can maintain stable political relationships, not just tactical ones."
UPCOMING REFORMS
One key priority post-midterms will be streamlining Argentina's complex tax system, likely including measures to reduce and eliminate levies, a move intended to boost productivity.
Milei also wants to overhaul employment laws to give employers more flexibility to simplify hiring and firing and to extend the hours of the legal workday, while splitting vacation days and allowing them to partially pay wages in non-monetary forms or pay severance in installments.
Analysts said simplifying tax collection may be achievable, but garnering support for labor reforms - which may be unpopular with the larger public - presents a tougher challenge.
One proposal involves shifting jurisdiction over labor disputes from federal to local courts, which critics argue lack technical expertise, potentially weakening protections for workers and fostering rulings benefiting employers.
Milei may be hard-pressed to find support from the Peronist opposition. Yedlin, the Tucuman congressman, said that while he's not opposed to a labor reform, he thinks the focus should be on macroeconomic policies that further Argentina's growth, which has slowed in recent months.
Factories across the country have shuttered as Milei's deregulation measures have led to growing competition from cheaper imports.
"It's very hard for the economy to grow because of the Javier Milei country model, which is open customs, open imports, destruction of industry," said Yedlin.
(Reporting by Lucinda Elliott and Leila Miller. Additional reporting by Lucila Sigal in Buenos Aires. Editing by Christian Plumb)
