Paraguay bank crisis: Senate removes Santiago Peña after Ueno Bank collapse

Paraguay’s political crisis deepened after former president Santiago Peña was put under house arrest on Friday. The move followed a Senate vote to remove Peña from office. The decision came after regulators seized Ueno Bank. The bank failure left nearly three million customers without access to savings or cards.

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Prosecutors ordered Peña to stay at home until a hearing with an economic crimes unit. A letter to the national police commander set out the detention order. The attorney general’s office confirmed to The Associated Press that Peña was held there. The same order sought the arrest of Carlos Carvallo, Peña’s former central bank chief.

Ueno Bank collapse and Senate impeachment vote

The Senate removed Peña in a unanimous vote, with 44 senators present. Lawmakers cited misconduct in office after the bank collapse. Peña had denied wrongdoing during the political fallout. The verdict arrived three days after regulators seized Ueno Bank before dawn on Tuesday, triggering fast-moving turmoil across the government.

Vice President Pedro Alliana was sworn in as president on Friday. Pedro Alliana will serve the remainder of the term, ending in August 2028. Pedro Alliana faced separate scrutiny too. Prosecutors are investigating Pedro Alliana, and lawmakers shelved an opposition effort to impeach Pedro Alliana on Thursday.

Peña’s removal also blocked a lifetime Senate seat under Paraguay’s Constitution. That seat would have provided parliamentary immunity for an elected former president. Opposition lawmakers pushed for removal to prevent that outcome. Peña had submitted a resignation on Thursday, but Congress did not accept it.

Ueno Bank probes, arrests, and public funds allegations

Lawmakers accused Peña of using political influence to direct vast public deposits into Ueno. They also alleged regulators ignored risky insider lending. Prosecutors are investigating current and former central bank and pension fund officials. Prosecutors also charged 27 people, including controlling shareholder Miguel Vázquez, with alleged crimes.

Six bank directors are in pretrial detention, according to prosecutors. Authorities seized nine luxury cars from Vázquez’s home. Authorities also seized a yacht and small planes linked to Vázquez. Investigators searched executives’ homes in a gated community outside the capital during the widening inquiry.

The impeachment charges cited Peña’s stake in Ueno’s holding company. Peña divested that stake under pressure last year. The charges also referenced Peña appointing a former Ueno executive to lead the central bank. Lawmakers further alleged the state pension fund placed USD 355 million at Ueno, beyond legal limits.

Ueno Bank fallout and protests over frozen savings

Public anger grew as customers found accounts frozen overnight. Many could not withdraw cash, reach savings, or use cards. Ueno had targeted poor and unbanked customers with supermarket rebates. Ueno said more than 1 million Paraguayans opened a first bank account there, before the seizure.

Some depositors began recovering money on Thursday, starting with smaller balances. Payouts began for those holding up to 10 million guaraníes, about USD 1,600. Deposits are insured up to about USD 37,000. The central bank said that level covers nearly all customers and called the collapse isolated.

Protests intensified as thousands demanded access to savings and accountability. Police fired rubber bullets and used pepper spray during clashes this week. Paraguay’s largest teachers union, with over 40,000 members, planned an indefinite national strike from Monday. The union sought protection for public pension funds.

"This was an enormous betrayal of trust, said Yinal López, a worker at the state electricity company, whose employee pension fund also had money at Ueno. The president made a mockery of the people. He used their money, the peoples money, to do whatever he wanted.\"

Ueno Bank crisis and Colorado party power struggle

Ueno’s collapse quickly became a political reckoning inside the Colorado party. By Thursday afternoon, Peña offered to resign as party leaders turned against Peña. Former President Horacio Cartes led that shift. By Friday, the interior minister, chief of staff, legal adviser, and political adviser had all resigned.

Peña was a former International Monetary Fund economist who rose with Cartes’ backing. Cartes, a tobacco magnate, made Peña finance minister and supported Peña’s presidential bids. Analysts said Peña later built a rival base in office. Ueno Bank, filled with public deposits, became central to that effort.

\"Its like a Shakespearean drama. He tried to displace his mentor, his political patron, said Miguel Carter, director of DEMOS, a Paraguayan research centre. But he did so on very fragile grounds.\"

Cartes’ allies raised alarm about Ueno months earlier. In September, loyal senators demanded answers from the central bank. They cited leaked internal reports on loans to related companies. After the collapse, Cartes publicly called for Peña’s ouster. Cartes had been sanctioned by the US Treasury over alleged corruption.

\"Cartes put the nail in the coffin, said Andrew Nickson, a Paraguay expert at the University of Birmingham. Peña had no political base to rely on, and he was left high and dry.\"

Ueno Bank growth, public deposits, and regulatory credibility

Ueno rose fast to become Paraguay’s fifth-largest bank by deposits. More than USD 800 million in public money supported its expansion. The bank signed up more than two-thirds of the country’s adults. Its logo appeared widely, including at the national soccer stadium and on cards used by street vendors.

Even national football team players reported frozen accounts after the seizure. Ueno had sponsored the team through a World Cup upset of Germany this year. Nickson said the impact spread beyond politically active groups. Nickson said the disruption fuelled anger among many people not usually engaged in politics.

Concerns also grew about regulators’ independence during Peña’s time in office. Analysts said Ueno’s political links reduced scrutiny as financial risks increased. \"For the last 20 years, the central bank has been one of the two pillars that gave Paraguay international credibility in managing its economy, said José Tomás Sánchez, a political theory professor at the National University of Asunción. And under Peña, it began to lose credibility, lose neutrality and then relax all its control mechanisms to favor the business group that had Ueno Bank as one of its pillars.\"

In a farewell message before the verdict on Friday, Peña said the exit aimed to reduce harm. \"I do not want my presence to be a cause of greater division or instability, he wrote. My responsibility is to put the country above my personal fate.\" With Pedro Alliana now in office, authorities faced pressure to restore deposits and pursue the ongoing investigations.

With inputs from PTI