Ousted Paraguayan president placed under house arrest after impeachment

Explainer

Paraguay's Senate voted unanimously on Friday to remove President Santiago Peña from office, and he was placed under house arrest hours later. The impeachment was triggered by the collapse of Ueno Bank, which regulators seized earlier in the week, locking millions out of their savings. All 44 senators present found Peña guilty of misconduct, making him only the second president impeached since the end of dictatorship in 1989. He must remain at his home in Asunción until a court appearance Saturday on charges including breach of trust and influence peddling, which carry potential prison sentences of up to 10 years.

Vice President Pedro Alliana was sworn in immediately to serve the remainder of the presidential term until 2028. "The Paraguay we receive today has urgent needs," said Alliana, who is himself under investigation in the banking scandal. In a statement before the vote, Peña said he did not want his "presence to be a cause of greater division or instability." He added, "I say goodbye with gratitude, without ignoring the anguish of those who are waiting for answers today." Prosecutors also issued an arrest order for Carlos Carvallo, the former head of Ueno whom Peña appointed to lead the central bank.

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What are the specific allegations against Peña?

Peña is accused of using his position to direct public money into Ueno Bank while regulators ignored its risky lending practices. Senators allege he allowed the state pension fund to deposit $355 million at the bank, exceeding legal limits. They also point to his past ownership stake in Ueno's parent company and his decision to put a former Ueno executive in charge of the central bank. Analysts say these actions protected the bank from proper oversight. "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.

How did the bank collapse trigger a political crisis?

The seizure of Ueno Bank on Tuesday plunged Paraguay into its deepest political crisis in over a decade. The digital bank had attracted more than a million first-time customers with perks like supermarket rebates. Its failure instantly froze accounts, leaving people unable to withdraw cash or use their cards. The crisis extended beyond depositors, idling 3,000 ride-hailing drivers and trapping $21 million in international loans meant for public works. Public anger erupted in protests throughout the week. "This was an enormous betrayal of trust," said Yinal López, a state electricity worker whose pension fund money was stuck at Ueno. "The president has made a mockery of the people."

Why did Peña's political allies turn against him?

Peña's downfall was accelerated by his mentor, former president and party chief Horacio Cartes. Cartes, a tobacco magnate, had propelled Peña's career, making him finance minister and backing his presidential bids. Once in office, analysts say Peña tried to build an independent power base using Ueno's resources. "It's like a Shakespearean drama. He tried to displace his mentor, his political patron," said Miguel Carter of the DEMOS research centre. Cartes retaliated last September, directing allied senators to question the central bank about Ueno's solvency. When the bank failed, Cartes publicly demanded Peña's removal. "Cartes put the nail in the coffin," said University of Birmingham expert Andrew Nickson. "Peña had no political base to rely on, and he was left high and dry."

What happens to Ueno Bank's customers and executives?

The central bank has begun reimbursing depositors, starting with accounts containing up to 10 million guaraníes, or about $1,500. Deposit insurance covers amounts up to roughly $35,000, which officials say protects 97 percent of Ueno's clients. Authorities insist the broader financial system remains stable. In a parallel case, prosecutors have charged 27 Ueno executives, including founder Miguel Vázquez, with crimes like breach of trust and attempted fraud. Six former directors are in pretrial detention, and two others are under house arrest with electronic monitors. Police have seized luxury cars, a yacht and two planes linked to Vázquez. The bank had grown rapidly to become one of Paraguay's largest, fueled by over $800 million in public deposits. Peña had defended Ueno publicly as recently as last month, dismissing media reports about its stability. His impeachment strips him of the lifetime Senate seat and its associated immunity granted to former presidents. On Friday night, police surrounded his home as crowds gathered outside, vowing to keep watch to prevent any escape.

With files from BNN Bloomberg, The Globe and Mail and CBC News