In a 37-36 decision, the Senate struck down the president's proposed tax increase on soy exports, marking the first time in nearly five years that Fernandez or her predecessor, husband Nestor Kirchner, have seen any major resistance from Congress.
In the spring, Fernandez attempted to pass a 9 point export tax increase on soybeans, one of Argentina's most valuable exports. The tax hike was meant to raise an estimated $800 million a year for programs implemented during the previous administration.
But farmers launched strikes, protests and roadblocks to fight the increase, and soon the proposal was sent to the government's lower house. Argentina's lower house passed the soybean tax on July 7. But when the Senate took it up on July 16, it immediately became apparent that the chamber was split.
"Our farmers have enjoyed growth and don't have debts," Fernandez said ahead of the final tally, according to the Buenos Aires Herald. "That's why we ask them to show all the solidarity they can so that inequality in Argentina can be made to disappear."
The Senate was deadlocked at 36-36 until Vice President Julio Cobos, an opposition politician who allied with the government, voted "no".
"I think today is the most difficult day of my life," Cobos said, according to the Associated Press. "They tell me I must go along with the government for institutional reasons, but my heart tells me otherwise. May history judge me, my vote is not for, it's against."
The rejection marked a turnaround in a legislature that had often moved in line with Fernandez's and her husband Kirchner's previous decisions.
"The government never once voted against the president in any major way," said Steve Levitsky, a government professor at Harvard University. "Politics has come back. The government has had to scream and kick, bargain, compromise and listen to debate."
The defeat is a blow to Fernandez, who was elected with 45 percent of the vote but has since seen her popularity rating decline to around 20 percent.
Even before the soybean vote, Fernandez faced growing political opposition, including from within her own Peronist Party. Also called the Judicialist Party, the political body has a history of unifying behind new leaders, according to Hugo Alconada Mon, Washington correspondent for La Nacion.
"There is a saying inside Argentina: The Peronist Party moves like a military force," he said. "Every time that they sense that the general is going to retire, they look for who could be the new general."
The party reportedly is looking for a potential new commander among provincial governors and regional senators, who hold considerable power in the Argentine legislature. Former governors from powerful provinces such as Cordoba and La Pampa are "some of the most powerful players in the Peronist Party," Levitsky said.
Shakeups in next year's midterm elections may set the stage for strong challenges to a Fernandez reelection campaign in 2011, Alconada Mon said.
"These are the first steps. It's premature, but you know that it's coming," he said. "It will be a major moment in next year's election in Congress. The opposition could be proposing figures who are presidential figures."
Although Fernandez's leadership was considered less popular than her husband's, the two formed a close-knit political team that inspired confidence among many Argentine people. With the country struggling with an economic recession since 2001, former President Kirchner helped restore economic stability with his firm stance on international trade agreements and taxation plans.
"Nestor came in 2003 until 2007, and you really saw the benefits of a favorable commodities market," said Shannon O'Neil of the Council on Foreign Relations. "They were trying to raise money so they started -- under Nestor -- taxes on various products including soy."
But Kirchner's ability to move Argentina past its economic downturn has tasked his successor, Fernandez, with modifying expiring taxation legislation and trade agreements, and finding ways to fund government programs.
"The government needed to raise money to pay for the programs they had implemented," O'Neil said. "Value-added taxes are at some of the highest in Latin America, and soybean tax is quite easy to collect."
And the proposed tax increase, though upsetting to farmers across the country, was in line with previous economic steps, according to Levitsky.
"This is a government that has never lost," he said. "They'd gotten in a number of battles in 2003, 2004, when [the] Kirchner government took a very hard-line stance" to fight the country's sagging economy. "The International Monetary Fund said you can't do it, (the taxation rate is) way too high. They stood by it, and they won."
The past successes of the Kirchner-Fernandez team may have led to increased confidence in the latest soybean tax proposal, said Levitsky. "They may have miscalculated, but they were on a heck of a winning streak."