‘Very strange, very sad’: Paraguay bank collapse fells a presidency and leaves millions broke

Pedro Volpe, 50, a writer and lawyer, was among millions of Paraguayans who discovered their bank accounts had been frozen last Tuesday, a day after payday. The customers of Ueno Bank, a digital lender that had aggressively expanded across the country, found they couldn't access their balances after the central bank ordered the institution into resolution over insolvency.

The bank's collapse has triggered a political and economic crisis, bringing Paraguay's banking system to the brink of collapse. By Friday, it led to the impeachment and house arrest of rightwing president Santiago Peña, who had resigned the day before in a failed attempt to retain special jurisdiction afforded to former presidents.

Political fallout

Peña went from being a market favorite among Latin American presidents and a key ally of Donald Trump in the region to facing mass protests and impeachment. Lawmakers stripped him of his seat as a senator for life, meaning he will face criminal proceedings in ordinary courts. The former president is under investigation by the public prosecutor's office over alleged favoritism toward Ueno Bank.

Economic impact

Ueno Bank's popularity, evidenced by its sponsorship of the national football team, league and major clubs, meant its collapse had immediate economic consequences. Businesses reported an overall fall in sales of up to 80% this week. Media outlets belonging to the same financial group, including radio stations and the century-old newspaper La Tribuna, had their operations suspended, leaving 300 workers without salaries.

The crisis has affected approximately 32,000 pensioners whose public pension funds had been invested in the bank, leaving them without payments. Many workers have also been unable to get paid or make payments, according to historian and political analyst Fabián Chamorro.

Roots of the crisis

Peña, a former finance minister and ex-employee of the central bank and International Monetary Fund, was elected at age 44 as the youngest president in Paraguay's democratic history. He promised to restore a 'great Paraguay' and attract foreign investment. Soon after taking office, he appointed Carlos Carvallo Spalding, Ueno's former CEO, to lead the central bank.

Less than three months later, Spalding authorized Ueno, then a finance company, to become a digital bank. The bank's rapid expansion and eventual collapse have raised questions about regulatory oversight and political connections.