Bolivia's defeat by Paraguay in the Chaco War (1932–1936) marked a turning point in the modern history of Bolivia. Significant loss of life and territory discredited the traditional ruling classes, while service in the army produced stirrings of political awareness among the indigenous people. Much of the contested Gran Chaco region was surrendered to Paraguay. In return, Bolivia was given access to the Paraguay River where Puerto Busch was founded, and, with this, free access to the Atlantic Ocean through international waters was possible.
In 1936, Standard Oil's Bolivian operations were nationalized, and the state-owned firm Yacimientos Petroliferos Fiscales Bolivianos (YPFB) was created. From the end of the Chaco War until the 1952 Bolivian National Revolution, the emergence of contending ideologies and the demands of new groups convulsed Bolivian politics. Bolivian tin enjoyed high demand and prices during World War II and the Korean War.
Even as the quality of the ores fell, the U.S. built a smelter that could handle low-grade Bolivian ores and continued to buy Bolivian tin. Following the nationalization of the mines, tin prices fell with the Korean War over, and the U.S. no longer needed tin to support a war effort. Additionally, when the mines were nationalized, the foreign mining engineers and managers left the country, leaving the mines lacking skilled replacements.Richard S. Thorn, "The Economic Transformation," In Beyond the Revolution: Bolivia Since 1952, James M. Malloy and Richard S. Thorn, eds, University of Pittsburgh Press, 1971, p. 173.
Republican Party and Great Depression
The Liberal Party's long rule of Bolivia, one of the most stable periods in the country's history, ended when the Republicans seized the presidency in a bloodless coup d'état in 1920. Fernando Díez de Medina, a Bolivian writer, commented on the change: "Twenty years of privilege for one group ends, and ten years of privilege for another begins." Republican Party soon split into two parties: one led by Bautista Saavedra with his Republican Socialist Party and another led by Daniel Salamanca, who established the Genuine Republican Party. Saavedra, President between 1920 and 1925, had the support of the urban middle class, while Salamanca was more conservative. Several minor political parties influenced by socialist or Marxist thought also emerged.Maria Luise Wagner. "The Republican Party and the Great Depression". In Hudson & Hanratty.
During the Republican rule, the Bolivian economy underwent a profound change. Tin prices started to decline in the 1920s. After peaking in 1929, tin production fell dramatically as the Great Depression nearly destroyed the international tin market. This decline was also caused by the decrease in the tin content of ore and the end of new investment in the mines in Bolivia. As economic growth slowed, Republican presidents relied on foreign loans. Saavedra (1920–25) and Hernando Siles Reyes (1926–30) borrowed heavily in the United States to finance major development projects, despite opposition by Bolivian nationalists to the favorable terms for the lender. The so-called Nicolaus loan aroused national indignation because it gave the United States control over Bolivia's tax collections in return for a private banking loan of US$33 million.
The rule of the Republican Party and its President Saavedra initially did not indicate any profound changes in Bolivian politics. The 1920s, however, was a period of political change. During the 1920s, Bolivia faced growing social turmoil. Saavedra legalized the right to strike and introduced government arbitration in labor disputes. In 1922, he caused a general strike after banning night taxis. The strikers won, taxi services were resumed, and the railroad federation was recognized as representative of railroad workers.Bolivia: The Uncompleted Revolution
Labor unrest, such as the miners' strike in Uncia in 1923, was brutally suppressed. The unrest reached new heights of violence after the drastic workforce reduction during the Great Depression. Indian peasants continued to rebel in the countryside. However, they had been disarmed, and their leaders had been executed after participating in the overthrow of the Conservative Party in 1899. Now, for the first time, the Indians found support for their cause among the elite. Gustavo Navarro, who took the name Tristan Marof, was Bolivia's most important Indianist. He saw in the Inca past the first successful socialism and the model to solve rural problems. As Indian uprisings continued during the Liberal rule, Siles Reyes promised to improve their situation and organized the National Crusade in Favor of Indians.
The social legislation of the Republican governments was weak, however, because neither Saavedra nor Siles Reyes wanted to challenge the rosca (tin mining magnates' political representatives). Siles Reyes's four years of inconsistent rule and unfulfilled promises of radical changes frustrated workers and students. In 1930, he was overthrown when he tried to bypass the constitutional provision forbidding reelection by resigning to run again. A military junta ruled until March 1931, when Republican leader Daniel Salamanca (1931–34) was elected as a candidate of the Republican and Liberal coalition. Although he was an esteemed economist before taking office, Salamanca was unable to suppress social unrest and to solve the severe economic problems caused by the Great Depression. Criticism of his administration mounted in all sectors of Bolivian society. Initially reluctant to enter into an armed conflict with Paraguay, he nevertheless led Bolivia into the Chaco war, a move supported by the military and traditional groups.
Chaco War (1932–1935)
The Chaco War originated in a long-standing dispute between Bolivia and Paraguay over the Gran Chaco region. This vast area was largely undeveloped except for some minor oil discoveries by Standard Oil in Bolivia and by Royal Dutch Shell in Paraguay. The Chaco, which Bolivia traditionally regarded as its province, became more significant to Bolivia after it lost its Pacific coastline to Chile in 1879. Bolivia hoped to access the Atlantic Ocean with an oil pipeline across the Chaco to the Paraguay River. Despite mediation attempts by various countries, the increased number of border incidents led the military high commands of Bolivia and Paraguay to prepare for the inevitability of war.Maria Luise Wagner. "The Chaco War". In Hudson & Hanratty.
President Salamanca used one of the border incidents to break diplomatic relations with Paraguay and to increase Bolivia's military budget, even though the country had severe economic problems. Convinced that Bolivia's better-equipped, German-trained troops outnumbered the Paraguayan army and could win the war, Salamanca went to war in September 1932.
The war raged for the next three years. The Bolivians experienced defeat in all major battles. By the end of 1934, they had been driven back 482 kilometers from their original positions deep in the Chaco to the foothills of the Andes. Serious strategic errors, poor intelligence, and logistical problems reaching the distant battle lines contributed to the losses. In addition, the morale of the Bolivian troops was low, and the highland Indian troops could not adapt to the extreme climate in the low-lying Chaco. Despite the high command's decision to end the war, Salamanca was determined to continue at all costs. In 1934, when he traveled to the Chaco to take personal command over the war, Salamanca was arrested by the high command and forced to resign. His vice-president, José Luis Tejada Sorzano, who was known to favor peace, was installed as president (1934–36).
Salamanca's overthrow proved a turning point in the Chaco War. New, more capable Bolivian officers stopped the Paraguayan troops, who fought closer to Bolivian supply lines. On June 14, 1935, a commission of neutral nations (Argentina, Brazil, Chile, Colombia, Peru, and the United States) declared an armistice; a definite settlement was finally reached in 1938. Bolivia lost the Chaco but retained the petroleum fields, which Paraguay had failed to reach. Both countries suffered heavy losses in the war. Bolivia lost an estimated 65,000 people killed and 35,000 wounded or captured out of a population of just under 3 million.
The humiliating disaster of the Chaco War had a profound impact on Bolivia, which saw the conflict as a watershed event in the history of the 20th century. The traditional oligarchy was discredited because of its inept civilian and military leadership in the war. Unable to deal with growing criticism, its members blamed the loss of the war on the low potential of the Bolivians and saw the earlier pessimistic assessment in Alcides Arguedas's famous novel Pueblo Enfermo (A Sick People) confirmed.
After the war, middle-class professionals, writers, and young officers questioned the traditional leadership. This group, which came to be known as the Chaco Generation, searched for new ways to deal with the nation's problems. It resented the service of the rosca on behalf of the tin-mining entrepreneurs. It criticized Standard Oil Co., which had delivered oil to Paraguay clandestinely through Argentine intermediaries during the war. The Chaco Generation was convinced of the need for social change. Gustavo Navarro, now more radical than during the 1920s, proclaimed the famous slogan "land to the Indians, mines to the state". The military, which came to power in 1936, tried to bring about change with popular support.
Prelude to the National Revolution, 1935–1952
Radical military government On May 17, 1936, Colonel David Toro Ruilova (1936–37) overthrew President Tejada in a military coup. Because the officer corps wanted to avoid a civilian investigation of the military's wartime leadership, backing for the coup came from all ranks. The main backers were a group of younger officers who wanted to bring profound change to Bolivia. Toro, the leader of this group, hoped to reform the country from the top down. His program of "military socialism" included social and economic justice and government control over natural resources. He also planned to set up a corporate-style political system to replace the democratic system established in 1825.Maria Luise Wagner. "Radical military government". In Hudson & Hanratty.
Toro attempted to get civilian support with far-reaching social legislation and nominated a print worker as the first labor secretary in Bolivia. He also nationalized the holdings of Standard Oil without compensation and called for convening a constitutional congress that would include the traditional parties, new reformist groups, and the labor movement.
Toro was unable to secure lasting popular support. A group of more radical officers resented his reluctance to challenge the rosca, and they supported a coup by Colonel Germán Busch Becerra (1937–39) in 1937. A new constitution was promulgated in 1938, stressing the primacy of the common good over private property and favoring government intervention in social and economic relations. It also legalized the Indian communities and included a labor code. In 1939, Busch challenged the interests of the mine owners for the first time by issuing a decree that would prevent the mining companies from removing capital from the country. None of his policies, however, resulted in significant popular and military support and completely alienated the conservative forces. Frustrated by his inability to bring about change, Busch committed suicide in 1939.