By the late nineteenth century Peru’s foreign debt, particularly to England, had grown enormously. Even though interest could be paid in guano, there simply wasn’t enough. To make matters considerably worse, Peru went to war with Chile in 1879.
Lasting over four years, this ” War of the Pacific ” was basically a battle for the rich nitrate deposits located in Bolivian territory. Peru had pressured its ally Bolivia into imposing an export tax on nitrates mined by the Chilean-British corporation. Chile’s answer was to occupy the area and declare war on Peru and Bolivia. Victorious on land and at sea, Chilean forces had occupied Lima by the beginning of 1881 and the Peruvian president had fled to Europe. By 1883 Peru “lay helpless under the boots of its conquerors”, and only a diplomatic rescue seemed possible. The Treaty of Anco , possibly Peru’s greatest national humiliation, brought the war to a close in October 1883.
Peru was forced to accept the cloistering of an independent Bolivia high up in the Andes, with no land link to the Pacific, and the even harder loss of the nitrate fields to Chile. The country seemed in ruins: the guano virtually exhausted and the nitrates lost to Chile, the nation’s coffers were empty and a new generation of caudillos prepared to resume the power struggle all over again.