By Robert Plummer BBC Latin American affairs analyst

Political instability at the top in Paraguay has put the government on the defensive in recent months, with grassroots protest movements forcing a series of policy reversals by President Luis Gonzalez Macchi's administration.

An informal alliance of rural workers, trade unions, left-wing groups and other organisations has staged repeated demonstrations throughout the country, calling for free-market policies to be scrapped.

As a result, despite evidence that economic contagion from Argentina has further weakened the already feeble Paraguayan economy, Mr Gonzalez Macchi has agreed to backtrack on various measures, including the privatisation of the telecommunications company Copaco.

Now the protesters are demanding his resignation - and the intensification of their campaign comes at a time when the president has very few political allies left.

Assassination blame

Mr Gonzalez Macchi only came to power in March 1999 because of a constitutional vacuum.

President Luis Gonzalez Macchi has alienated members of his own party

His predecessor, Raul Cubas, had resigned in order to avoid being impeached after a political crisis sparked by his decision to free the jailed coup leader, General Lino Oviedo, and by the subsequent assassination of Vice-President Luis Maria Argana, for which both men were blamed.

Mr Gonzalez Macchi was next in line to take over the presidency because he was speaker of Congress at the time.

However, he soon alienated even his own party, the ruling Colorados, by his insistence on serving out the remainder of Mr Cubas' term in office instead of calling fresh elections.

A coup attempt by General Lino Oviedo was thwarted in May 2002

To add to his troubles, an election to fill the post left vacant by Mr Argana's assassination was won by the main opposition candidate, Julio Cesar Franco, marking the first time in 53 years that the Colorados had suffered electoral defeat.

Mr Franco has expressed his support for the anti-government protests and has denied that General Oviedo, now living in exile in Brazil, is behind them.

But whether Mr Gonzalez Macchi is forced from office or not, fresh presidential elections are finally due next year, and General Oviedo's UNACE party is bound to make a strong showing at the polls.