Ousted Paraguayan president placed under house arrest after bank collapse

Paraguayan lawmakers impeach Santiago Peña and place him under house arrest

Paraguay's President Santiago Peña was impeached and placed under house arrest following the collapse of Ueno Bank, a digital lender with links to his private business interests. Lawmakers, including members of the president's own party, voted unanimously to remove him from office on Friday, minutes before his arrest.

Peña had offered to step down on Thursday, stating in a video posted on X, It was never my intention to betray the trust you placed in me, and adding that his priority was the peace of mind of Paraguayans who entrusted their savings to our financial system. Rather than accept his resignation, senators rejected it and voted to impeach him, stripping him of the parliamentary immunity usually granted to former presidents. In the Senate, 44 of the 45 senators voted in favor of removal, while one lawmaker was absent. Senate President Basilio Núñez announced that Peña had been found guilty of negligence and dereliction of duty in carrying out his duties.

The swift removal denies Peña the lifetime Senate seat that would have accompanied an accepted resignation. Prosecutor Silvia Margarita Gonzalez Vester announced that Peña was scheduled to appear before the economic crimes and anti-corruption unit on Saturday to be questioned over allegations of breach of trust, influence peddling, and misappropriation of funds. Peña has denied any wrongdoing or involvement in illegal activities. Until last year, he held shares in the company that owns the bank. His defense lawyer, Ricardo Preda, described the allegations as a reckless accusation that was irresponsible and opportunistic.

How Ueno Bank's sudden seizure froze millions of accounts

The crisis escalated after regulators seized Ueno Bank before dawn on Tuesday, intervening and taking control of its management. The digital lender had expanded rapidly by offering supermarket rebates and banking services to unbanked residents, growing to become the country's fifth-largest lender by deposits. It was supported by more than $800 million in public funds before regulators intervened.

The implosion locked millions of Paraguayans out of their savings and bank cards. Long lines of people trying to withdraw money from Ueno branches snaked down the streets of the capital, Asunción, on Tuesday and Wednesday. The sudden freeze affected approximately 3 million depositors, representing nearly two-thirds of Paraguay's adult population. Bank services were completely paralyzed, freezing the savings, pensions, and salaries of hundreds of thousands of people, while billions of dollars in government funds were thrown into question.

The bank's aggressive expansion had drawn in more than 1 million first-time bank account holders, including players on the national soccer team that reached a World Cup upset of Germany this year. The financial shockwaves quickly bled into the broader economy. A ride-hailing platform dependent on the lender shut down, leaving 3,000 drivers without work. The state electricity company reported that $21 million in loans from Taiwan and the Inter-American Development Bank, earmarked for public infrastructure, remained trapped inside the failed bank. Paraguay's bonds suffered steep losses in emerging markets, and the national currency, the guaraní, weakened against the US dollar.

Authorities began releasing funds to depositors on Thursday, prioritizing those holding up to 10 million guaraníes (about $1,500). Central bank officials stated that deposits are insured up to approximately $37,000, which they maintain covers nearly all Ueno customers. Regulators insisted the collapse was an isolated case and that the broader financial system remained safe, even as public outrage intensified.

Protests erupt and political alliances fracture

Public anger spilled into the streets of downtown Asunción, where thousands of protesters marched through police cordons firing rubber bullets and pepper spray, alongside earlier demonstrations featuring police using tear gas and water cannons. Crowds gathered outside Congress and later ringed Peña's residence, waving national flags and chanting Dictatorship never again! and Santi Peña to Tacumbú!, referencing the capital's main prison where Ueno's founder is held.

Senator Rafael Filizzola said, We are facing the biggest corruption scandal in our democratic history – a tremendous blow to the state, to private citizens, and to the country's credibility and image.

Labor groups mobilized immediately. Paraguay's largest teachers' union, representing over 40,000 members, scheduled an indefinite national strike to demand protection for public pension funds. Lawmakers had accused Peña of permitting the state pension fund to deposit $355 million into Ueno, allegedly exceeding legal limits. Impeachment charges also highlighted Peña's former stake in Ueno's holding company, his appointment of a former Ueno executive to head the central bank, conflicts of interest, manipulation of regulatory oversight, diversion of pension funds, and participation in an institutional cover-up involving the central bank.

The political fallout claimed other top figures, as arrest warrants were issued for Carlos Carvallo, whom Peña appointed as central bank chief after Carvallo ran the finance company that evolved into Ueno. It was not immediately clear whether Carvallo had been taken into custody. Peña's interior minister, chief of staff, legal adviser, and political adviser all resigned by Friday.

The collapse marked a stunning reversal for a technocrat whose political ascent was engineered by his longtime mentor, Horacio Cartes, a billionaire tobacco magnate and head of the ruling, conservative Colorado party. Cartes turned on Peña in September when senators loyal to him demanded answers from the central bank regarding Ueno's risky lending to related companies. As prior business connections between Ueno's former owner group and Peña drew intense scrutiny, the Colorado party turned on its leader, stripping him of his remaining leverage.

Pedro Alliana takes office as interim president

Paraguayan lawmakers swore in former Vice President Pedro Alliana as the country's new president on Friday to serve out the term ending in August 2028. Alliana, 52, is a veteran member of the conservative Colorado Party who previously served as governor of Ñeembucú province and speaker of Paraguay's lower house of Congress. Prosecutors are investigating Alliana as well, though lawmakers shelved an opposition bid to impeach him.

In his inaugural address, Alliana pledged that vulnerable depositors would not be abandoned, promising that transparency would be non-negotiable under his watch.

Compatriots who are now going through a difficult time as a result of the financial collapse will be fully compensated.

Pedro Alliana, President of Paraguay, via BBC News

Returning frozen funds to citizens and holding those responsible accountable stand as the immediate challenges facing Alliana as he inherits a fractured government. Meanwhile, Miguel Vázquez, Ueno founder and former CEO, remains held in pretrial detention at Tacumbú prison alongside 27 total individuals charged by prosecutors.