BUENOS AIRES, Argentina (AP) — Argentine President Javier Milei suffered a sweeping setback on Sunday in a Buenos Aires provincial election widely viewed as a political test for his libertarian party and a barometer for how it will perform in crucial congressional midterms next month.

Milei’s recently formed La Libertad Avanza party captured just 34% of the vote in Argentina’s biggest province, losing by a landslide to the left-leaning Peronist opposition, which secured 47% with the majority of ballots counted late Sunday.

Milei conceded that his right-wing party’s crushing 13-point loss to his populist rivals represented “a clear defeat.”

“We suffered a setback, and we must accept it responsibly,” Milei told grim-faced supporters at the party headquarters, his tone reflective, even chastened.

“If we’ve made political mistakes, we’re going to internalize them, we’re going to process them, we’re going to modify our actions,” he said.

Still, he vowed to stick with his sweeping economic overhaul, saying: “There will be no retreat in government policy.”

Milei faces a worse-than-expected defeat

With Milei struggling to stabilize a sputtering economy and his close associates embroiled by a graft scandal ahead of congressional midterm elections in late October, the results were being closely scrutinized for their potential to rattle investors and roil jittery global markets.

Analysts expected La Libertad Avanza to lose by a few points to the Peronists, but his allies feared that a worse-than-expected outcome in Buenos Aires province — which makes up nearly 40% of the country’s population — would galvanize his rivals at a delicate time.

Peronist leader and former President Cristina Fernández de Kirchner appeared to feel on that she was getting some payback after a corruption conviction and criticism of her economic management, which led to a crisis that Milei inherited.

“Did you see that, Milei?” the two-term former president (2007-2015) wrote on social media platform X. “Get out of your bubble, brother. … Things are getting heavy.”

Stakes are raised for congressional midterms

Milei needs to expand his party’s tiny minority in the opposition-dominated Congress in midterms next month to fulfill his radical libertarian reforms and make good on his promise to turn the nine-time defaulter into a country capable of servicing its debts.

The Peronists are now the largest bloc in Argentina’s fragmented congress, and have used their numbers to pass social spending measures that are testing Milei’s efforts to balance Argentina’s budget.

“This result is a key data point to understand the social mood — where the opposition stands, the state of Peronism and the level of support for the government in Argentina’s most important electoral district,” said Juan Cruz Díaz, the head of Cefeidas Group, a consultancy in Buenos Aires.

“While not the main national election in October, it is nonetheless a wake-up call for the government, and how it reacts will be crucial to understanding the evolving political map.”

An economy in troubled waters

Although Milei can boast of bringing down Argentina’s triple-digit inflation over the last few months and ending the reckless spending of his Peronist predecessors, Argentines have yet to see the economic revival that was supposed to follow his harsh austerity measures.

His government has unwound Argentina’s labyrinthine currency restrictions as part of a $20 billion International Monetary Fund bailout, but has not yet won the trust of international financiers who could bring the investment needed to add jobs and turbocharge economic growth in the country.

“Milei has a very strong ideology, and his vision is that the state has to have a minimal impact and investments have to come from the private sector. But that hasn’t materialized yet,” said Ana Iparraguirre, an Argentine political analyst and partner at Washington-based strategy firm GBAO.

Consumer confidence is falling, unemployment is rising, and interest rates are soaring to record highs as the government repeatedly intervenes in the currency market to prop up the peso and hold down inflation in hopes of placating cash-strapped voters.

A battered Peronist party basks in its victory

Fernández waved wildly from the balcony of her home in Buenos Aires, where the former president is serving a six-year sentence under house arrest, to massive crowds of supporters celebrating in the streets below.

Despite being barred from politics for life, she remains the most influential leader of Peronism, an ideologically flexible populist movement focused on labor rights that emerged in the 1940s from Buenos Aires province and dominated politics for decades.

Fernández gloated over Milei’s agonies on social media, arguing that the bribery scandal engulfing the president’s powerful sister would prove “lethal” for his electoral prospects.

“And I won’t even start on how the rest (those who still have jobs) are doing. Burdened with debt for food, rent, utilities or medications, and on top of that, with maxed-out credit cards,” she added.

The electoral results also cast a spotlight on Fernández’s former protege, Axel Kicillof, the left-wing governor of Buenos Aires province and one of Milei’s fiercest critics, revealing him as best positioned to take up the mantle of future Peronist leadership.

Kicillof gave an ebullient speech late Sunday in which he rebuked Milei and reminded voters what they’ve lost by swapping Peronist populism for Milei’s brutal spending cuts.

“The ballot boxes told Milei that public works cannot be halted. They explained to him that retirees cannot be beaten, that people with disabilities cannot be abandoned,” he told cheering supporters.

“The ballot boxes shouted that education, healthcare, science and culture cannot be defunded.”