ASUNCIÓN, Paraguay -- Ousted Paraguayan President Santiago Peña was placed under house arrest Friday on suspicion of breach of trust, shortly after the Senate removed him from office over the collapse of a major bank tied to his government.
All 44 senators present voted to remove Peña for misconduct in office, making him the second Paraguayan president ousted by impeachment since the country returned to democracy in 1989. The verdict came three days after regulators took over Ueno Bank, locking nearly half of Paraguay’s more than 6 million people out of their savings and bank cards and setting off the country’s worst political crisis in more than a decade.
Prosecutors ordered that Peña be held at his home until he appears before their economic crimes unit Saturday.
“We have confirmed that he is present and has himself available to the authorities for all legal proceedings,” said Silvia Gonzalez, one of the prosecutors leading the case. Breach of trust carries a sentence of up to five years in prison, or up to 10 in serious cases.
Arrest of former central bank chief also ordered
The order also calls for the arrest of Carlos Carvallo, who ran the finance company that became Ueno until Pena named him central bank chief in 2023. It was not immediately clear whether Carvallo had been taken into custody.
Lawmakers accused Peña of using his political influence to steer hundreds of millions of dollars in public funds into Ueno while regulators overlooked risky insider lending. Peña has denied wrongdoing.
Vice President Pedro Alliana was sworn in as president Friday to serve out the term, which ends in August 2028. Alliana, who also is under investigation in connection with Ueno’s collapse, inherits a government under pressure to return depositors’ money and punish those behind Ueno’s collapse.
In a farewell message before the verdict, Peña expressed hope his departure would spare Paraguay further harm.
“I do not want my presence to be a cause of greater division or instability,” he wrote. “I say goodbye with gratitude, without ignoring the anguish of those who are waiting for answers today.”
Public outrage has become more thunderous by the day. As senators deliberated Friday, crowds of protesters demanding their frozen savings back and accountability for Ueno’s failure marched through downtown Asuncion chanting, “Santi Peña to Tacumbu!” -- a reference to the capital’s main prison, where Ueno’s founder and former CEO, Miguel Vazquez, is now being held.
“This was an enormous betrayal of trust,” said Yinal Lopez, 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 people’s money, to do whatever he wanted.”
Frozen accounts, rising anger
Overnight, Ueno customers could no longer withdraw cash, access their savings or use their cards to buy anything. The digital lender had aggressively courted the poor and unbanked with generous supermarket rebates, and more than 1 million Paraguayans opened their first bank account there, according to Ueno. Even players on the national soccer team, which Ueno sponsored through its run to a World Cup upset of Germany this year, say their accounts are frozen.
“The ripple effect on the general population has been immense,” said Andrew Nickson, a Paraguay expert at the University of Birmingham. “That has fuelled the ire of many people in Paraguay who are not particularly politically aware or very interested in politics.”
Some depositors began recovering their money Thursday, starting with those holding up to 10 million guaranies (about US$1,500). Deposits are insured up to about $35,000, which the central bank says covers 97 per cent of Ueno’s customers. It calls the collapse an isolated case and insists the broader financial system is safe.
In a separate case against Ueno’s executives, prosecutors have charged 27 people, including Vazquez, with crimes such as breach of trust and attempted fraud. A judge has ordered six former directors, Vazquez among them, held in pretrial detention, and two others under house arrest. Authorities have seized nine luxury cars from Vazquez’s home, along with a yacht and two small planes linked to him, and searched his business group’s offices and executives’ homes in a gated community outside the capital.
A bank built on public money
Ueno rose from obscurity to become one of Paraguay’s largest banks by deposits in just a few years, with more than $800 million in public money turbocharging its expansion. It signed up more than two-thirds of the country’s adults, its splashy logo appearing everywhere from the national soccer stadium to street vendors’ bank cards.
The impeachment charges cite Peña’s stake in Ueno’s holding company, which he divested under pressure last year, and his appointment of Carvallo to run the central bank that regulated it. Lawmakers also accuse him of letting the state pension fund deposit $355 million at the bank, beyond legal limits.
Analysts say those high-level connections helped shield Ueno from regulatory scrutiny even as concerns about its finances grew.
“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 Jose Tomas Sanchez, a political theory professor at the National University of Asuncion. “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.”
Peña defended the bank until mere weeks before it failed, telling reporters last month that a regulatory inquiry into Ueno didn’t mean it would close and accusing the media of frightening people.
A bank collapse becomes a political reckoning
Peña’s fall, from feted Washington ally meeting with Treasury Secretary Scott Bessent in late October to prisoner in his own home, came at dizzying speed.
Before dawn on Tuesday, regulators seized Ueno. By Thursday afternoon, Peña had offered to resign as his conservative Colorado party turned on him, led by former president Horacio Cartes, the party chief and Pena’s longtime mentor. By Friday, his interior minister, chief of staff, legal adviser and political adviser had all quit, and he was under arrest, with impeachment denying him the immunity he would have enjoyed if the Senate had accepted his resignation.
A telegenic technocrat and former International Monetary Fund economist, Peña owed his political ascent to Cartes. The tobacco magnate, among Paraguay’s richest men, made Peña his finance minister and twice backed him for president over rival factions’ objections.
Once in office, though, Peña sought to escape Cartes’ shadow by quietly building his own power base, analysts say. Ueno, flush with public funds, became its linchpin.
“It’s like a Shakespearean drama. He tried to displace his mentor, his political patron,” said Miguel Carter, director of DEMOS, a Paraguayan research center. “But he did so on very fragile grounds.”
Cartes struck back. In September, senators loyal to him demanded answers from the central bank about Ueno’s lending, citing leaked internal reports that warned its loans to related companies put its solvency at risk. When Ueno collapsed this week, so did Peña’s leverage, and Cartes, once sanctioned by the U.S. Treasury over alleged corruption, publicly called for the ouster of his erstwhile protege.
“Cartes put the nail in the coffin,” Nickson said. “Peña had no political base to rely on, and he was left high and dry.”
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Isabel Debre, Nayara Batschke and Emilio Sanabria, The Associated Press
DeBre reported from Salto, Uruguay, and Batschke from Montevideo, Uruguay.
