image source, Reuters
Until just a few weeks ago, Paraguay was considered one of the most stable economies in South America. But the crisis unleashed by the intervention of one of the largest banks in the country has transcended the financial sphere and now threatens to drag down President Santiago Peña himself.
Peña became president in August 2023 with a promise to boost economic growth and preserve the country's stability.
"I consider that the best social policy that exists is sustained economic growth," he said during his inauguration speech, in which he also promised to offer Paraguayans stability and predictability.
Just three months later, on November 22, 2023, the Central Bank of Paraguay (BCP) authorized the transformation of Financiera Ueno, until then a smaller financial entity, into a bank. The entity began operating as Ueno Bank in December of that year.
The authorization occurred when Carlos Carvallo Spalding was already in charge of the Central Bank, a position he had assumed in September 2023 after being appointed by Peña.
But two antecedents add questions about the links between political power and Ueno Bank.
Carvallo had presided over Financiera Ueno from March 2022 to August 14, 2023, just a few weeks before assuming the direction of the body in charge of supervising the financial system.
Peña, for his part, had been a shareholder of Ueno Holding, a company in which, among others, the Vázquez Group, the main shareholder of Ueno Bank, participated.
End of Most read
The president confirmed in April 2025 that he had sold his stake at the end of March of that year, although he insisted that he had never been a direct shareholder of the bank.
These links, added to the circumstances in which the transformation of Ueno into a bank was authorized, have triggered a political crisis that has caused the resignation of both Carvallo and Peña.
However, the controversy took an unexpected turn when the Paraguayan Congress decided this Thursday not to accept the president's resignation.
He now faces impeachment in Congress.
Mariano Machado, principal analyst for the Americas at the risk analysis consultancy Verisk Maplecroft, believes that Peña's resignation was not a concession, but rather an attempt to control the terms of an exit that he could no longer avoid.
image copyrightGetty Images
The analyst told BBC Mundo that an impeachment trial would prevent Peña from becoming a senator for life, a position that would grant him parliamentary immunity, and would leave him directly exposed to a criminal investigation.
On Friday morning, Peña requested a 72-hour extension to prepare and exercise his defense in the impeachment trial.
He maintained that a period of less than 12 hours [the one given to him to appear] is "insufficient" to guarantee that the process "meets the standards of a rule of law."
What are they accusing him of?
President Santiago Peña is mainly accused of "poor performance of his duties" and an alleged conflict of interest due to his business ties with the conglomerate that owns Ueno Bank.
The accusation of conflict of interest is related to his shareholding in Ueno Holding, a company linked to the Vázquez Group, the main shareholder of Ueno Bank.
Peña held those shares from before becoming president until March 2025, when he sold his stake.
During that period, Ueno experienced rapid expansion.
Under the Peña government and with Carlos Carvallo Spalding at the head of the Central Bank, the entity went from being a relatively small financial institution to becoming one of the main banks in the country, with nearly three million clients, around 60% of the Paraguayan adult population.
All the news you need is on BBC World Service
Download it here
End of Ad app
The opposition also holds Peña responsible for the Ueno financial crisis and its consequences for confidence in the banking system, as well as for the difficulties that hundreds of thousands of savers faced in accessing their deposits.
Another of the allegations points to an alleged interference by the president in the Social Security Institute (IPS), the public body that manages the pensions and health services of Paraguayan workers, to favor the transfer of funds to Ueno Bank.
The accusation also includes questions about possible irregular financial benefits, including loans received from the entity, as well as previous complaints related to his assets.
The impeachment promoters attribute institutional responsibility to him for decisions and omissions of his government that would have contributed to the crisis.
Likewise, lawmakers allege that their government pushed for regulatory changes that made it easier for public institutions to deposit significant amounts of money in Ueno Bank.
They also question the appointment of Carlos Carvallo, who had directed Financiera Ueno, as head of the Central Bank.
The accusation indicates that the regulatory authorities would have allowed Ueno to grant loans to companies linked to its own business group above the established limits.
For the promoters of the impeachment trial, these facts would demonstrate that the president put private interests before the public interest and that his government did not adequately protect the pension funds or savings of the bank's clients.
"Almost 2% of GDP deposited in the bank"
Mariano Machado, principal analyst for the Americas at Verisk Maplecroft, assures that the banking crisis ended up becoming a broader political crisis due to the internal fractures of the Colorado Party, the ruling party.
The analyst considers that Peña's departure would benefit former President Horacio Cartes, who is also the president of the Colorado Party, much more than the opposition that promoted the impeachment.
"By sacrificing Peña and keeping Vice President Pedro Alliana safe, Cartes regains control of both the presidency and the Colorado Party for 2028, despite having announced that he will leave the leadership of the party after 2027," he adds.
Machado also believes that Peña's departure could weaken one of the main arguments that Paraguay had used to attract foreign investment: the stability and predictability of its economic policy.
It warns that the consequences of the crisis could extend beyond the banking sector and affect the economy during 2027.
"In the long term, the fiscal cost of the crisis could last longer than the political crisis itself. Nearly US$850 million, equivalent to almost 2% of GDP, were deposited in the bank, which has already stopped operating," he explains.
"The recovery of these funds will depend on the liquidation of a loan portfolio concentrated in companies linked to the owners of the entity. Any shortfall in the recovery of that money would increase the public deficit, which is already expected to exceed the limit of 1.5% of GDP established by the fiscal rule in 2026 and 2027."
Discover more
Video
End of Video
