BOGOTA, Colombia (Reuters) -- The leader of Colombia's divided opposition
                   Liberal Party resigned on Monday in a bid to reunite rival factions of the party
                   to oppose President Andres Pastrana's plans to dissolve Congress, long viewed
                   as a hotbed of corruption.

                   "The minorities in government are trying to consolidate their control by authoritarian
                   means...In order to allow the full reunification of the Liberal Party, I resign my
                   leadership post," Luis Guillermo Velez said in his resignation letter.

                   The Liberal Party is the single largest party in both chambers of Congress. But a
                   group of dissident members are currently allied with the Great Alliance coalition,
                   led by Pastrana's Conservative Party, giving it parliamentary majority. If Velez's
                   decision to quit results in the Liberal factions reuniting around a consensus
                   leader, Pastrana's ruling coalition -- essential for pushing through key
                   government legislation -- would be torn apart.

                   Last week, Pastrana said he would call a referendum in July aimed at dissolving
                   Congress and electing new lawmakers in the wake of a multi-million dollar graft
                   scandal involving hundreds of shady contracts.

                   But with a newly consolidated majority in Congress, the Liberals could block that
                   move or include a question in the referendum on whether to revoke the mandate
                   of Pastrana, whose popularity has slumped since taking office in 1998.

                   If fresh congressional elections are held, the Liberals would likely win a majority
                   and could hobble Pastrana's efforts to introduce new legislation for the remaining
                   two years of his term.

                   Colombia's financial markets fear the political upheaval will delay a series of
                   economic reforms mandated by the International Monetary Fund and aimed at
                   slashing the public spending deficit. New York-based Standard and Poor's
                   downgraded Monday its credit rating outlook for Colombia, which is likely to
                   make it more expensive for the government to raise foreign and domestic debt
                   and could spark a run on the peso currency.

                   It was not immediately clear who would take over at the helm of the party,
                   which has alternated in power with the Conservatives for the last 150 years.

                   But the prospect of a Liberal Party reunification further fueled sentiment that
                   Pastrana's referendum call is backfiring and creating political uncertainty
                   reminiscent of the 1996 scandal over charges former president Ernesto Samper
                   bankrolled his 1994 election campaign with drug money.

                   Critics have suggested the referendum idea was a populist ploy designed to
                   deflect attention away from the root causes of corruption in Congress and
                   elsewhere in government. Most of the funds allegedly stolen or misspent by
                   Congress, including $49,000 for a new toilet and $56,000 to resolve millennium
                   bug problems on New Year's Eve, were handed out by cabinet ministers.

                   Political opponents accuse the government of sponsoring graft to ensure the
                   cohesion of the Great Alliance coalition and the swift passage of bills through
                   Congress.

                   "The methodical art of governing bores the president...he would much rather
                   curl up inside a warm poncho and sleep," former vice-president Carlos Lemos,
                   of the Liberal Party, wrote in a column in Monday's edition of the leading El
                   Tiempo newspaper.

                   "The president has found a way to launch a new electoral campaign. This time
                   he won't be a candidate but the leader of a mad adventure to strip the country of
                   its institutions," he added.