By Dave Graham
MEXICO CITY (Reuters) -Mexican President Andres Manuel Lopez Obrador on Monday vowed to forge ahead with his shake-up of the country after mid-term elections that eroded his power base in Congress and the capital but saw his party capture new ground in regional votes.
Lopez Obrador's ruling coalition entered Sunday's vote with a two-thirds majority in the 500-seat lower house but that was on course to drop to between 265 and 292 seats, according to a preliminary estimate by the National Electoral Institute (INE).
Promising to give priority to the poor, Lopez Obrador has dominated Mexican politics since taking power 2 1/2 years ago with a polarizing agenda that has tarred critics and adversaries as corrupt defenders of a society that bred inequality and crime.
His clashes with big business have rattled financial markets and news that voters had trimmed his advantage in Congress lifted the peso currency to its highest level in nearly three weeks and boosted Mexico's main stock index.
Lopez Obrador cast the election victories of his National Regeneration Movement (MORENA) and its allies as a vindication of his policies, and said he would redouble efforts to help the poor in the second half of his term.
"What was reaffirmed yesterday is that the policy of transformation is to continue," Lopez Obrador told a news conference. "And the people decided it."
"For me it's a source of pride that the humblest and poorest are the ones who most support the program of transformation."
Lopez Obrador touched on familiar themes for him such as the need to strengthen state control of the energy sector, and attacked sections of the media for trying to undermine his government.
He stressed that Mexico would carve out an independent foreign policy and repeated his complaint that U.S. public money had been used to help finance an anti-corruption group that has been critical of his presidency.
But he said Mexico would continue to work with Washington on containing illegal immigration ahead of a meeting with U.S. Vice President Kamala Harris on Tuesday.
Preliminary counts suggested that MORENA had performed stronger than some polling had anticipated in gubernatorial contests, winning as many as 11 out of the 15 offices at stake, with a record number of women poised to be elected.
There was disappointment, though, for the party in Mexico City, where Lopez Obrador cut his teeth as a national figure while serving as mayor of the capital from 2000 to 2005.
Lopez Obrador and his political machinery have controlled the capital for over two decades, but initial results suggested that domination of its 16 boroughs had come to an end.
Preliminary results showed 9 out 16 were won by the opposition, also dealing a blow to the city's mayor, Claudia Sheinbaum, one of the favorites to succeed Lopez Obrador. MORENA did appear set to hold a majority in the city's legislature.
Since taking office, Lopez Obrador has pushed through austerity measures to help fund welfare programs and infrastructure including a new refinery and railway line.
At the same time, he has worked to give state-run firms precedence over private capital in the energy sector. However, his losses in the lower house are likely to curb scope to pursue constitutional changes in support of his energy agenda.
Before the vote, MORENA had 253 seats in the lower house. INE projections said it will win between 190 and 203, making it reliant on allies to pass key legislation such as the budget.
Final opinion polls had showed the race tightening after a fatal metro accident in Mexico City and accusations that Lopez Obrador had intervened excessively in the campaign.
Many voters were also upset about his record on curbing gang violence and lifting growth before the COVID-19 pandemic tipped Mexico into its sharpest slump in nearly nine decades.
"We need a government that's more open to what business is proposing," said Enrique Prendas, 56, a Mexico City resident who voted for Lopez Obrador in 2018 but this time switched his vote to the center-right National Action Party (PAN).
The last regular session of Congress concluded at the end of April and the new lower house will convene in September.
Some analysts think MORENA could try to make the most of the numerical advantage it currently has and call extraordinary legislative sessions before the house changes.
Last week Lopez Obrador suggested he had realized the core of his legislative agenda, saying that only a few major issues remained for the second half of his term.
(Reporting by Dave Graham; Editing by Frank Jack Daniel and Alistair Bell)