Asunción: Paraguay's Senate on Friday removed President Santiago Peña from office over alleged misconduct linked to the collapse of Ueno Bank, triggering the country's deepest political crisis in more than a decade. Peña was subsequently placed under house arrest on suspicion of breach of trust, while Vice President Pedro Alliana was sworn in as his successor.
In a unanimous vote, all 44 senators present backed Peña's removal, clearing the way for Alliana to take office and serve the remainder of the presidential term, which ends in August 2028.
The decision came three days after financial regulators seized Ueno Bank, cutting nearly three million customers off from their savings and access to bank cards.
Lawmakers accused Peña of using his political influence to direct hundreds of millions of dollars in public funds into the bank while regulators overlooked risky insider lending. Peña has denied wrongdoing.
Prosecutors ordered that the ousted president remain at his home until he could be brought before the economic crimes and anti-corruption unit, according to a letter sent to the national police commander. The attorney general's office confirmed to The Associated Press that he had been detained there.
The order also called for the arrest of former central bank chief Carlos Carvallo, whom Peña had appointed. It was not immediately clear whether Carvallo was in custody.
Peña's removal bars him from taking the lifetime Senate seat granted to elected former presidents under Paraguay's Constitution, which would have given him parliamentary immunity. Prosecutors have opened criminal investigations involving Peña, current and former central bank and pension fund officials, and Alliana.
The new president, a veteran of the long-ruling conservative Colorado Party, is a former governor of the southern province of Ñeembucú and former speaker of the lower house. He is also under investigation in connection with the scandal. On Thursday, lawmakers shelved an opposition bid to impeach him.
Resignation rejected as opposition demands accountability
Peña had submitted his resignation on Thursday, but Congress did not accept it and proceeded with the impeachment trial.
His lawyers, Ricardo Preda and Adolfo Ferreiro, argued that lawmakers should have approved his departure instead of pursuing impeachment. Opposition lawmakers insisted on removing him to prevent him from leaving office with immunity.
"He must go, but not home. He must go to a maximum-security prison," opposition Senator Yolanda Paredes told reporters. "The public is fed up with impunity."
In a farewell message released shortly before the Senate verdict, Peña said he hoped his departure would spare Paraguay further 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."
Bank collapse sparks political fallout
Ueno's collapse has rapidly transformed into a major political crisis. Regulators seized the bank before dawn on Tuesday. By Thursday afternoon, Peña had offered to resign as divisions within the Colorado Party deepened. By Friday, his interior minister, chief of staff, legal adviser and political adviser had also quit.
The party's response was led by former president Horacio Cartes, its chief and Peña's longtime political mentor.
Peña, a former International Monetary Fund economist, owed much of his rapid political rise to Cartes, a tobacco magnate and one of Paraguay's wealthiest men. Cartes had appointed him finance minister and backed his presidential ambitions twice despite objections from rival factions.
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After taking office, however, Peña gradually built a rival political base, analysts said. Ueno Bank, supported by substantial public deposits, became central to both his business interests and his efforts to win the backing of provincial governors as he sought to move out of Cartes' shadow.
"It's like a Shakespearean drama. He tried to displace his mentor, his political patron," said Miguel Carter, director of Paraguayan research centre DEMOS. "But he did so on very fragile grounds."
In September, senators loyal to Cartes demanded answers from the central bank over Ueno's lending practices, citing leaked internal reports that warned loans to related companies could threaten the bank's solvency.
Following the collapse, Cartes publicly called for Peña's removal. Cartes had previously 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 expanded with public deposits
Ueno rose from obscurity to become Paraguay's fifth-largest bank by deposits within a few years, with more than $800 million in public money supporting its expansion.
It attracted more than two-thirds of the country's adults, with its branding appearing across public spaces, including the national football stadium and bank cards used by street vendors.
The impeachment charges cite Peña's stake in Ueno's holding company, which he divested under pressure last year, and his appointment of a former Ueno executive to head the central bank responsible for regulating the institution.
Lawmakers also accused him of allowing the state pension fund to deposit $355 million at Ueno, exceeding legal limits.
Analysts said the bank's high-level political connections may have shielded it from regulatory scrutiny despite growing concerns about its finances.
"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," he added.
Frozen accounts fuel public anger
The bank's collapse left customers unable to withdraw cash, access their savings or use their cards for purchases. Ueno had aggressively attracted poorer and unbanked customers through supermarket rebates. According to the bank, more than one million Paraguayans opened their first bank account with it.
Even players in Paraguay's national football team, which Ueno sponsored during its run to a World Cup upset of Germany this year, said their accounts had been frozen.
"The ripple effect on the general population has been immense," Nickson said. "That has fueled the ire of many people in Paraguay who are not particularly politically aware or very interested in politics."
Some depositors began recovering their money on Thursday, starting with customers holding up to 10 million guaraníes, equivalent to about $1,600.
Deposits are insured up to approximately $37,000, a limit the central bank says covers nearly all Ueno customers. The regulator has described the collapse as an isolated case and maintained that the wider financial system remains safe.
Thousands of protesters demanding access to their frozen savings and accountability for the bank's failure have clashed with police this week. Officers used rubber bullets and pepper spray during the demonstrations.
Paraguay's largest teachers' union, which has more than 40,000 members, plans to begin an indefinite national strike on Monday to demand protection for public pension funds.
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"This was an enormous betrayal of trust," said Yinal López, an employee of the state electricity company whose pension fund also had money deposited at Ueno.
"The president made a mockery of the people. He used their money, the people's money, to do whatever he wanted," he added.
Criminal investigations target bank executives
Prosecutors have charged 27 people, including Ueno's controlling shareholder Miguel Vázquez, with offences including breach of trust and attempted fraud. Six bank directors are in pre-trial detention.
Authorities have seized nine luxury cars from Vázquez's home, along with a yacht and small aircraft linked to him. They have also searched the homes of executives in a gated community outside the capital.
The investigations into the bank's collapse and the alleged misuse of public funds are continuing as Alliana takes charge of a government facing pressure to restore access to depositors' money and hold those responsible accountable.
