An uneasy calm reigns in Bolivia, less than a week after its government collapsed and its president fled for Miami on a scheduled commercial flight.

But the farmers, unionists, miners and indigenous groups that helped push Gonzalo Sánchez de Lozada out after 14 months in office are only in momentary retreat.

"We've just won one battle," says Roberto de La Cruz, regional secretary for the country's main trade union in El Alto, a poor city of 800,000. "But war has been declared."

In the interests of peace, Carlos Mesa, the new president, made El Alto - which sprawls across the high plains above La Paz, Bolivia's capital - the scene of his first photo opportunity, barely 12 hours after taking the oath in a hastily co-ordinated session in Congress.

The popular rally was a conciliatory gesture to a mainly indigenous city that saw 30 deaths in the violent days before Mr Sánchez de Lozada lost the support of a coalition unnerved by the brutal repression of the security forces.

But El Alto also gave Mr Mesa a ready snapshot of a country where poverty, high unemployment, social marginalisation and radical street politics could easily create another revolt.

"El Alto has always been a time-bomb ready to explode," says Gonzalo Chávez, economist at the Catholic University in La Paz.

When times were relatively good, during the boom years of Mr Sánchez de Lozada's first presidency in the mid-1990s, social tensions were more easily contained.

Private sector capitalisation of state companies injected foreign capital into the $8bn (£4.7bn, €6.85bn) economy, allowing the government, with the help of debt-relief programmes and low-interest bilateral credits, to slash external obligations and rein in the fiscal deficit.

Extreme poverty fell from 37 per cent of the population to 24.4 per cent between 1992 and 2001, according to one study. Life expectancy rose and infant mortality fell markedly during the same period. As growth soared and inflation fell, South America's poorest country became a model of the benefits of neo-liberal reforms.

But a series of shocks since 1998 have wiped out jobs and credit and deprived the state of revenue to build infrastructure and secure a social security net. After climbing 5.5 per cent in 1998, growth in gross domestic product has contracted to an average 2 per cent since 1999. Tensions throughout Bolivia have been rising.

In February, 30 people died during riots triggered by tax reforms in La Paz and El Alto, which pitted striking policeman against the armed forces.

The reforms were shelved and the deficit - including pension fund debt - rose to 9 per cent, well wide of targets set by the International Monetary Fund as part of a $120m standby deal. Consumer demand has been weak, exports flat, and the banking system has shrunk by about 40 per cent since 1999, choking private sector investment.

A series of external factors partly explains the downturn, including devaluation in neighbouring Argentina and Brazil, commodity price weakness and a heavy fall in direct foreign investment.

But at home, the eradication of much of the country's illicit coca - the plant used to produce cocaine - has cut domestic output by $240m, or 3 per cent of GDP, according to conservative estimates. The US-backed programme has directly affected about 50,000 farmers and helped crystallise a broader anti-government movement led by Evo Morales, an opposition politician and a key critic of Mr Sánchez de Lozada.

Energy-law reforms mean the state has also lost about $120m a year in royalties from multinational groups that control the country's oil reserves, says Ramiro Cavero, executive director of a centre-right think tank in La Paz. Hopes of recouping some of this through company taxes have been dashed by heavy investments costs, which are written off against profits.

"It is very difficult for the ordinary Bolivian to comprehend how, in times of rising international oil prices, companies are paying less to the state," he says.

Like coca eradication, foreign exploitation of Bolivia's fossil fuels has brought disparate protest groups together under a single anti-globalisation banner.

Central to the unrest in the weeks leading up to the government's collapse was opposition to a plan to export natural gas to the US via a pipeline through Chile, an historic enemy of Bolivia.

The IMF estimates the $5bn project could add a percentage point to Bolivia's GDP, but Mr Mesa has shelved it pending a national referendum.

The people of El Alto are demanding further concessions, many of which would require rewriting the constitution and dismantling the reforms of the last decade. The IMF, World Bank and the US will be pushing Javier Gonzalo Cuevas, the finance minister, to keep the free market model intact.

Most Bolivians are hoping for a compromise solution. "We've seen a tremendous amount of social energy generated," says Mr Chávez. "The trick now is to channel it into something productive."