The war with Chile developed over the disputed, nitrate-rich Atacama Desert. Neither Peru, nor its ally, Bolivia, in the regional balance of power against Chile, had been able to solidify its territorial claims in the desert, which left the rising power of Chile to assert its designs over the region. Chile chose to attack Bolivia after Bolivia broke the Treaty of 1866 between the two countries by raising taxes on the export of nitrates from the region, mainly controlled by Chilean companies. In response, Bolivia invoked its secret alliance with Peru, the Treaty of 1873, to go to war.

Peru was obligated, then, to enter a war for which it was woefully unprepared, particularly since the antimilitary Pardo government had sharply cut the defense budget. With the perspective of hindsight, the outcome with Peru's more powerful and better organized foe to the south was altogether predictable. This was especially true after Peru's initial defeat in the naval Battle of Iquique Bay, where it lost one of its two iron-clad warships. Five months later, it lost the other, allowing Chile to gain complete control of the sea lanes and thus to virtually dictate the pace of the war. Although the Peruvians fought the superior Chilean expeditionary forces doggedly thereafter, resorting to guerrilla action in the Sierra after the fall of Lima in 1881, they were finally forced to conclude a peace settlement in 1883. The Treaty of Ancón ceded to Chile in perpetuity the nitrate-rich province of Tarapacá and provided that the provinces of Tacna and Arica would remain in Chilean possession for ten years, when a plebiscite would be held to decide their final fate (see fig. 3). After repeated delays, both countries finally agreed in 1929, after outside mediation by the United States, to a compromise solution to the dispute by which Tacna would be returned to Peru and Chile would retain Arica. For Peru, defeat and dismemberment by Chile in war brought to a final disastrous conclusion an era that had begun so auspiciously in the early 1840s with the initial promise of guano-led development (see Postindependence: Military Defeat and Nation-Building , ch. 5).

Data as of September 1992