Indigenous protests over natural gas and demands for autonomy by the wealthy eastern provinces are on a collision course under the watchful eyes of the armed forces, which have indicated that they will not accept any division of the national territory.
Indigenous protesters, joined by teachers, miners and students, have clashed with police in La Paz, the seat of government, over the past few days.
They are demanding nationalisation of the country's natural gas reserves - the second-largest in South America after those in Venezuela - or at least an increase in direct royalties paid by the foreign oil companies operating in Bolivia.
They are also staunchly opposed to the autonomy drive led by the eastern province of Santa Cruz, Bolivia's wealthiest.
Bolivia, a country of 9.2 million, is South America's poorest nation. But it is divided between the western highlands, home to the indigenous majority, and the rich eastern provinces, which account for most of the country's oil production, industry and gross domestic product (GDP).
Much of the population of eastern Bolivia is made up of people of European descent.
A week ago, after President Carlos Mesa refused to veto or sign into law a bill increasing the royalties and taxes on foreign oil companies from 18 to 50 percent, Congress went ahead and enacted the new law itself.
The ongoing protests and the pressure from wealthy provinces demanding autonomy have generated uncertainty on Bolivia's future, and an increasingly difficult situation for Mesa to deal with.
Indigenous and labour groups backed Mesa's designation as president in October 2003, after a month of protests in La Paz and the nearby slum city of El Alto forced his predecessor Gonzalo Sánchez de Lozada to resign and flee the country after just one year in office.
Nearly 70 people were killed in what was dubbed the "gas war", after Sánchez de Lozada called the army out to quash the demonstrations.
The trade unions and campesino (peasant farmer) associations taking part in the October 2003 protests secured a pledge from Mesa to hold a referendum on the foreign oil companies' control over Bolivia's abundant natural gas reserves (estimated at 53 trillion cubic feet) and to convene a constituent assembly to rewrite the constitution.
But 14 months after Mesa was named president, a movement of business associations, large soy farmers, bankers and landowners in Santa Cruz threatened last January to break away from Bolivia, although they eased their demands after Mesa promised to work towards a solution that would give the provinces greater autonomy.
Mesa, meanwhile, is attempting to navigate between two antagonistic sets of demands - from the indigenous and labour groups in western Bolivia on one hand, and the wealthy interests demanding autonomy in eastern Bolivia on the other.
One of the steps he has taken was to present an ambitious programme aimed at creating 70,000 new jobs.
He also allowed Congress to assume the responsibility for enacting the controversial new law on natural gas, which is opposed by the oil companies operating in Bolivia because it raises the taxes they have to pay and modifies the contracts they signed in the 1990s.
Bolivia's natural gas and oil production is controlled by foreign companies like British Petroleum, France's Total, Petrobras from Brazil and Repsol from Spain.
The law is also opposed by indigenous and labour organisations that backed Mesa in the past. They do not want the foreign companies to continue exploiting Bolivia's natural gas, and most of them are demanding the outright nationalisation of the industry.
Only the Movement Towards Socialism (MAS), the strongest opposition party - led by indigenous lawmaker Evo Morales, the leader of Bolivia's coca growers - says it would accept the continued presence of foreign oil companies, but only on the condition that the transnational corporations pay a 50 percent direct royalty.
That would be instead of the current 18 percent royalty and a new 32 percent tax on production established by the law enacted by Congress last week.
Leftist critics of the new law say it will be easy for the oil companies to evade the 32 percent tax.
In the meantime, the Santa Cruz Civic Committee gathered 250,000 signatures to demand a referendum that would allow voters in that province to decide whether or not they want autonomy, and said it would wait until last week for Congress to set a date for the referendum.
But the legislature's delay in making a decision and opposition to the autonomy drive by indigenous and labour groups in La Paz that threatened to occupy Congress prompted the Santa Cruz Civic Committee to set Aug. 12 as the date for its own referendum.
In response, MAS said it would go ahead and call a constituent assembly, which it sees as the appropriate forum for debating autonomy demands.
MAS criticises the questions that the Santa Cruz Civic Committee wants to put to voters in a referendum, such as whether they would like greater local control over the administration of natural resources - like oil and gas, which are concentrated in eastern and southern Bolivia - and the taxes levied on them.
Morales argued that neither of these questions can be included in a referendum because they involve national sovereignty issues.
The lawmaker also maintained that many of the oil companies support Santa Cruz's call for autonomy because they believe it would be easier to negotiate royalties with the oil and gas-rich regions than with the Bolivian state itself.
In the midst of the debate, the armed forces publicly stated that they would not recognise "decisions that violate the constitution" - a reference to initiatives for "self-convened" referendums or constituent assemblies - and that they would not accept any division of the country.
An eight-day march by around 5,000 campesinos and coca farmers who support MAS reached the government palace in La Paz on Monday, and have have been joined in their protests and roadblocks by other groups like miners, students and teachers, while workers in El Alto declared a general strike.
On Tuesday, riot police used water cannons and tear gas to try to break up the demonstrations.
The protesters are pressing Congress to call a constituent assembly, while workers in El Alto, one of the country's poorest cities, continue to demand the nationalisation of Bolivia's natural gas. They are also calling for Mesa to step down, saying he betrayed the promises he made when he became president.
Carlos Hugo Laruta, the director of the Research Centre for Campesinos (CIPCA-La Paz), told IPS that "The populist and radical forces of El Alto are numerically weaker than in October 2003, and splits have appeared among their leaders because some sectors have come to understand the risks of their actions."
Campesino leader Román Loayza, whose group has ties to MAS, gave Congress until Friday to convoke a constituent assembly.
Other groups are also calling for Congress to be dissolved.
Laruta said there is no immediate risk to national unity, and that he places his hopes on "a great silent mass of citizens" who would not support a break-up of the national territory - but who might, he warned, back a coup d'etat to restore order.