During the presidency of Marshal Andrés de Santa Cruz, Bolivia enjoyed the most successful period of her history with great social and economic advancement. Santa Cruz got involved in internal Peruvian political problems and succeeded in unifying Peru and Bolivia into a confederation, the Peru-Bolivian Confederation. As Santa Cruz openly declared the Inca Empire as a predecessor of his state, this move was perceived as a threat to regional power balance and a menace to countries on former Inca territory. The War of the Confederation broke out and different wars against almost all its neighbors were fought during this period with sound victories against its enemies but maybe the turning point took place on the fields of Paucarpata where the Confederacion Peru-Boliviana led by Santa Cruz forced the Chilean and Peruvian rebel armies to sign the peace treaty known as the Paucarpata Treaty which included their unconditional surrender; later this treaty was discarded by the Chilean parliament. The rebel Peruvians and the Chilean army set off to a new war against Santa Cruz, defeating the Confederation on the fields of Yungay. This was the turning point on Bolivian history after this moment for nearly 60 years, coups and short-lived constitutions dominated Bolivian politics.
Going through a vicious economical and political crisis Bolivia's military weakness was demonstrated during the War of the Pacific (1879–83), when it lost its seacoast and the adjoining rich nitrate fields to Chile. An increase in the world price of silver brought Bolivia a measure of relative prosperity and political stability in the late 1800s.
During the early part of the 20th century, tin replaced silver as the country's most important source of wealth. A succession of governmental applied laissez-faire policies through the first third of the century.