Journal du Club des Cordeliers - Former Paraguayan President Santiago Peña Impeached and Placed Under House Arrest

Former Paraguayan President Santiago Peña was placed under house arrest on Friday, shortly after the Senate voted unanimously to remove him from office. The decision follows the collapse of Ueno Bank, a government-linked financial institution that froze the accounts of nearly half of Paraguay’s 6 million people, triggering the country’s most severe political crisis in more than a decade.

Peña was ordered to remain at one of his residences in Asunción until he appears before prosecutors on Saturday morning. He faces charges including breach of trust, influence peddling, and using public office for personal gain. The most serious of these allegations carry potential prison sentences of up to 10 years.

All 44 senators present voted to impeach Peña for misconduct in office, making him the second Paraguayan president to be ousted by impeachment since the end of General Alfredo Stroessner’s 35-year dictatorship in 1989. The vote ended a presidency that had been widely viewed as one of South America’s most stable.

As the verdict was announced, crowds gathered in the plaza outside Congress erupted in cheers. Depositors, retirees, and students wearing national soccer jerseys waved Paraguayan flags, sang, and hugged while chanting "Dictatorship never again!" The public anger had intensified daily as senators deliberated, with protesters marching through downtown Asunción demanding accountability for Ueno’s failure.

Regulators seized Ueno Bank just three days earlier, sending shock waves through the financial system. Lawmakers accuse Peña of using his political influence to steer hundreds of millions of dollars in public funds into the bank while regulators overlooked risky insider lending. The impeachment charges specifically cite Peña’s stake in Ueno’s holding company, which he divested under pressure last year, and his appointment of Carlos Carvallo to run the central bank that regulated it.

Carvallo, who ran the finance company that became Ueno until Peña named him central bank chief in 2023, was also ordered arrested by prosecutors. It was not immediately clear whether Carvallo had been taken into custody. Additionally, prosecutors have charged 27 people, including Ueno’s founder and former CEO Miguel Vázquez, with crimes such as breach of trust and attempted fraud. A judge has ordered six former directors, including Vázquez, to remain in pretrial detention, while two others are confined to their homes with electronic monitors.

Vice President Pedro Alliana was sworn in as president on Friday to serve out the remainder of the term, which ends in August 2028. "The Paraguay we receive today has urgent needs," Alliana said. He inherits a government under immense pressure to return depositors’ money and punish those responsible for the bank’s collapse.

Public outrage was fueled by the immediate impact on citizens’ lives. When regulators seized the bank, customers could no longer withdraw cash, access savings, or use cards for purchases. The digital lender had aggressively courted the poor and unbanked with generous supermarket rebates, leading more than 1 million Paraguayans to open their first bank account there. Even players on the national soccer team, which Ueno sponsored through its run to a World Cup upset of Germany this year, reported being unable to access their money.

The fallout extended beyond savers. A ride-hailing app that relied on Ueno shut down, leaving 3,000 drivers without work. The state power company reported that $21 million in loans from the Inter-American Development Bank and Taiwan, earmarked for public works, was trapped at the bank. Paraguay’s bonds posted some of the worst losses in emerging markets that week, and the guaraní slid against the dollar.

Some depositors began recovering their money on Thursday, starting with those holding up to 10 million guaraníes (approximately $1,500). Deposits are insured up to about $35,000, which the central bank says covers 97% of Ueno’s customers. The central bank described the collapse as an isolated case and insisted the broader financial system remains safe.

Ueno had risen 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. Its logo appeared everywhere from the national stadium to street vendors’ bank cards. Analysts say high-level connections helped shield Ueno from regulatory scrutiny even as concerns about its finances grew.

"Under Peña, the central bank 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," said José Tomás Sánchez, a political theory professor at the National University of Asunción.

Peña had defended the bank until mere weeks before it failed. Last month, he told reporters that a regulatory inquiry into Ueno did not mean it would close and accused the media of frightening people. His fall from being a feted Washington ally meeting with Treasury Secretary Scott Bessent in late October to a prisoner in his own home occurred at dizzying speed.

Ueno was seized before dawn on Tuesday. 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 Peña’s longtime mentor. By Friday, he was under arrest, with impeachment denying him the immunity he would have enjoyed if the Senate had accepted his resignation.

Peña, a former International Monetary Fund economist, owed his rise to Cartes, a tobacco magnate who made him finance minister and twice backed him for president. Once in office, Peña sought to escape Cartes’ shadow by quietly building his own power base. Analysts say Ueno, flush with public funds, became the linchpin of this effort.

"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 when senators loyal to him began publicly questioning the central bank about Ueno’s risky lending to related companies. When Ueno collapsed, Peña’s leverage disappeared, and Cartes publicly called for his ouster.

"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."

In a farewell message before the verdict, Peña stated that he did not want his "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." Police ringed Peña’s house on Friday night as crowds gathered outside, vowing to keep vigil until morning to ensure he did not escape.

Yinal López, a worker at the state electricity company whose employee pension fund also had money at Ueno, expressed the sentiment of many. "This was an enormous betrayal of trust," López said. "The president has made a mockery of the people." Protesters chanted "Santi Peña to Tacumbú!" a reference to the capital’s main prison where Miguel Vázquez is currently being held.

D.Dupuis--JdCdC