The decade of the 1920s did not begin well for Central America. Despite the euphoria associated with the end of the World War and the increase in business confidence which was felt throughout the world economy in 1919, the first year of the decade ushered in the beginning of a mild depression which had serious repercussions on several Central American republics.

On the political front, the period of relative peace in the region begun with the entry of US marines into Nicaragua in 1912 proved to be more apparent than real. US attempts to apply non-recognition clauses from the 1907 Washington Treaty, which had eventually proved successful against Federico Tinoco in Costa Rica, failed badly in Guatemala at the time of the overthrow of Estrada Cabrera (April 1920); in Honduras, General López Gutiérrez forced recognition in 1920 from the USA for his government which had come to power through a successful revolt against the duly elected Francisco Bertrand.

Relations between Central and North America were strained still further when Nicaragua thwarted efforts to form a Central American Federation in 1920/1. With Nicaragua still occupied by marines, it was generally believed that her opposition reflected US policy. Although a Treaty of Union was signed by the remaining republics, the fact that Nicaragua was so centrally located gave the Federation little chance of success and it collapsed soon after.