Paraguay’s ousted president under house arrest after bank collapse leaves millions locked out of accounts

Paraguay’s president has been placed on house arrest on Friday after the collapse of a government-linked bank that locked nearly half the country’s population out of their accounts.

Paraguay’s Senate voted to remove Santiago Peña for misconduct in office, making him the second president ousted by impeachment since the end of Gen. Alfredo Stroessner’s 35-year dictatorship in 1989.

Regulators had seized Ueno Bank just three days earlier, sending shock waves through the financial system and setting off the country’s worst political crisis in more than a decade.

Peña was ordered to remain at one of his homes in Asunción until he appears before prosecutors Saturday morning on charges of breach of trust, influence peddling and using public office for personal gain, the most serious of which carry up to 10 years in prison. Lawmakers accuse him of using his political influence to steer hundreds of millions of dollars in public funds into Ueno while regulators overlooked risky insider lending.

The Paraguayan president denied wrongdoing.

When regulators seized the bank, Ueno customers could no longer withdraw cash, access their savings or use their cards to buy anything. The digital lender had aggressively courted the poor and unbanked with generous supermarket rebates, and more than 1 million Paraguayans opened their first bank account there, according to Ueno. Even players on the national soccer team, which Ueno sponsored through its run to a World Cup upset of Germany this year, say they can’t reach their money.

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

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

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