Uruguayans have voted to overturn a law that would have opened up the country's oil market to foreign investors.
President Jorge Batlle's re-election chances are looking slimmer
Early results of Sunday's referendum show that voters have rejected the controversial law by a majority of more than 60%, electoral officials said.
The oil trade privatisation 'no' vote is a setback for Uruguay's centre right president Jorge Batlle.
The rejection of the law, which Batlle backed, is being seen as a foretaste of presidential elections in October 2004.
Commentators say the South American country's President Jorge Batlle could lose power if the shift to the left continues.
The oil trading law allowed for an injection of foreign capital into the country's energy sector by permitting state monopoly ANCAP to set up joint ventures.
The law was originally passed in 2001, but its implementation was frozen amid calls for a referendum.
Now that a referendum has taken place it looks set to be scrapped.
Political commentators say Uruguay's four year recession is behind the government's unpopularity.
Uruguay's economy shrank by nearly 11% in 2002 as neighbouring Argentina's economic troubles caused cross-border trade to collapse.
The fragility of Argentina's own economy triggered a massive debt default and currency devaluation in December 2001.
Spanish energy group Repsol YPF was among the foreign firms interested in taking part in Uruguay's oil trade.