In 1930 Paraguay, despite the appearance of calm, was on the verge of a major upheaval. In 1928 the governing Liberal Party had won the right to rule in the first freely contested election in the country's history, and after years of sullen abstentionism the opposition Colorado Party had been induced to accept minority status in Congress. Moreover, political progress was matched by relative economic stability. Outside Asunción, the nation's capital and only real city, the effects of the world depression were little felt by the predominantly self-sufficient agrarian population of some 750,000. Beneath the surface, however, lay explosive tensions.

Popular discontent with President José P. Guggiari stemmed from a growing impatience with his failure to take a firm stand against Bolivia over conflicting claims to the Chaco, a large wasteland of desert and jungle lying between the Andes Mountains and the Paraguay River. Despite his efforts to lead an honest and progressive administration, Guggiari was to leave office in 1932 a very unpopular man. His government was most severely damaged by a notorious incident on 23 October 1931, in which his guards attacked a student rally protesting his apparent weakness in the face of Bolivian aggression. Eleven people were killed and many more wounded. Although Guggiari was later exonerated by a congressional investigation, the Colorados resigned their legislative seats and Paraguay's young intellectuals turned away from Liberalism to embrace new movements such as the Liga Nacional Independiente, which called for massive war preparations. The election in 1932 of a new Liberal president, Eusebio Ayala, in a one-man race, did little to reverse the party's growing political isolation.