In December 1943, the Radepa-MNR [Nationalist Revolutionary Movement (Movimiento Nacionalista Revolucionario--MNR)] alliance overthrew the Peñaranda regime. Major Gualberto Villarroel López (1943-46) became president, and three MNR members, including Paz Estenssoro, joined his cabinet. The MNR ministers resigned, however, when the United States refused recognition, repeating its charge of ties between the MNR and Nazi Germany. The ministers returned to their posts in 1944, after the party had won a majority in the election and the United States had recognized the government. Villarroel's government emphasized continuity with the reformist regimes of Toro and Busch. Paz Estenssoro, who served as minister of finance, hoped to get popular support with a budget that emphasized social spending over economic development. But the salary increase for miners did not bring about their consistent backing of the government and only managed to strengthen the ties between the MNR and miners.
The Villarroel government also tried for the first time to get the support of the campesinos. In 1945 it created the National Indigenous Congress to discuss the problems in the countryside and to improve the situation of the peasants. However, most of the social legislation, such as the abolition of the labor obligation of the campesinos to their landlords, was never put in effect.
Villarroel was overthrown in 1946. He had been unable to organize popular support and faced opposition from conservative groups and increasing political terrorism that included murders of the government's opponents. Rivalry between the MNR and the military in the governing coalition also contributed to his downfall. In 1946 mobs of students, teachers, and workers seized arms from the arsenal and moved to the presidential palace. They captured and shot Villarroel and suspended his body from a lamppost in the main square, while the army remained aloof in the barracks.
Tin from Bolivia was vital to the Allied war effort during World War II. After the Bolivian government of President Enrique Penaranda (1892-1970) declared war on the Axis powers (April 1943), a group of dissident army officers lead by Colonel Gaulberto Villaroel (1907-46) and supported by the National Revolutionary Movement (MNR), the Argentine government, and German agents in Buenos Aires, staged a successful coup, deposing Penaranda (December 21, 1943) and installing Villaroel as president. Initially, the United States refused to recognition of Villaroel's regime, but later granted it when Villaroel promised to cooperate with the Allies. With the decline of mineral prices, inflation, and unemployment at the end of the war, Bolivia suffered severe economic hardship, which helped bring on a popular revolt against the government at La Paz on July 17-21, 1946. The army did nothing to check rebellious soldiers, workers, and students; Villaroel was seized and hanged from a lamppost in front of the presidential palace. A provisional liberal government was installed and recognized by the United States and Argentina.