Cándido Bareiro, López's ex-commercial agent in Europe, returned to Paraguay in 1869 and formed a major Lopizta faction. He also recruited General Bernadino Caballero, a war hero with close ties to López. After President Juan Bautista Gil was assassinated in 1877, Caballero used his power as army commander to guarantee Bareiro's election as president in 1878. When Bareiro died in 1880, Caballero seized power in a coup. Caballero dominated Paraguayan politics for most of the next two decades, either as president or through his power in the militia. His accession to power is notable because he brought political stability, founded a ruling party--the Colorados--to regulate the choice of presidents and the distribution of spoils, and began a process of economic reconstruction.

Despite their professed admiration for Francia, the Colorados dismantled Francia's unique system of state socialism. Desperate for cash because of heavy debts incurred in London in the early postwar period, the Colorados lacked a source of funds except through the sale of the state's vast holdings, which comprised more than 95 percent of Paraguay's total land. Caballero's government sold much of this land to foreigners in huge lots. While Colorado politicians raked in the profits and themselves became large landowners, peasant squatters who had farmed the land for generations were forced to vacate and, in many cases, to emigrate. By 1900 seventy-nine people owned half of the country's land.

Although the Liberals had advocated the same land-sale policy, the unpopularity of the sales and evidence of pervasive government corruption produced a tremendous outcry from the opposition. Liberals became bitter foes of selling land, especially after Caballero blatantly rigged the 1886 election to ensure a victory for General Patricio Escobar. Ex-Legionnaires, idealistic reformers, and former Lopiztas joined in July 1887 to form the Centro Democrático (Democratic Center), a precursor of the Liberal party, to demand free elections, an end to land sales, civilian control over the military, and clean government. Caballero responded, along with his principal adviser, José Segundo Decoud, and Escobar, by forming the Colorado Party one month later, thus formalizing the political cleavage.

Both groups were deeply factionalized, however, and very little ideology separated them. Colorado and Liberal partisans changed sides whenever it proved advantageous. While the Colorados reinforced their monopoly on power and spoils, Liberals called for reform. Frustration provoked an aborted Liberal revolt in 1891 that produced changes in 1893, when war minister General Juan B. Egusquiza overthrew Caballero's chosen president, Juan G. González. Egusquiza startled Colorado stalwarts by sharing power with the Liberals, a move that split both parties. Ex-Legionnaire Ferreira, along with the cívico (civic) wing of the Liberals, joined the government of Egusquiza--who left office in 1898--to allow a civilian, Emilio Aceval, to become president. Liberal radicales (radicals) who opposed compromising with their Colorado enemies boycotted the new arrangement. Caballero, also boycotting the alliance, plotted to overthrow civilian rule and succeeded when Colonel Juan Antonio Ezcurra seized power in 1902. This victory was Caballero's last, however. In 1904, General Ferreira, with the support of cívicos, radicales, and egusquistas, invaded from Argentina. After four months of fighting, Ezcurra signed the Pact of Pilcomayo aboard an Argentine gunboat on December 12, 1904, and handed power to the Liberals.

Data as of December 1988