The political and financial crisis exposes a central contradiction in Paraguay’s recent economic development. Ueno, a bank celebrated for expanding financial access to ordinary Paraguayans, grew through unusually close relationships with political elites and public institutions. And while the Ueno crisis came as a shock, there were clear warning signs.

As scholars with expertise in various aspects of Paraguay’s contemporary political, economic and environment development, we believe the collapse raises troubling questions about who benefits from financial modernization, who controls it and who bears the risks when it fails. The political relationships through which financial institutions grow, regulators exercise authority and public resources are entrusted to private companies are crucial national concerns, especially in a country that has presented itself internationally as a model of economic stability.

A bank that grew faster than scrutiny

Founded as a digital lender in 2021, Ueno attracted customers with mobile banking and cash-back offers. Its expansion brought useful services to people underserved by conventional banks, including rural customers. Ueno also expanded the credit card market to low-income customers, an unprecedented move compared to previously restricted banking practices.

As Ueno expanded, Paraguay increasingly attracted investors drawn by its low taxes, economic stability and business-friendly policies. Promoted by some as a “Dubai of South America,” the country also became a magnet for conservative influencers, particularly from Brazil, who contrasted Paraguay’s economic model with the purported mismanagement of left-wing governments elsewhere in the region. Indeed, under President Santiago Peña, Paraguay has been one of Latin America’s most enthusiastic allies of the Trump administration and its expansive regional vision.

But beneath the financial stability, Ueno stood at the precipice of a much deeper problem.

The central bank finally acted after accounting adjustments left Ueno’s solvency ratio below half the legal minimum. But problems had surfaced earlier. That included a supervisory report put out by the bank regulators in June 2026 that described roughly US$146 million in loans to three companies linked to Grupo Vázquez, Ueno’s controlling shareholder. Some companies had been transferred to group employees; supervisors questioned the collateral and ultimate use of the funds.

That these warning signs went unheeded raises a related question of why regulators didn’t have a better handle on the situation and were not better able to contain the exposure.

In any case, Ueno’s problems were exposed in dramatic fashion on Nov. 2, when the central bank placed Ueno into resolution, a process similar to bankruptcy but managed directly by Paraguay’s central bank. The lender, which says it has nearly 3 million customers – about half of the country’s population – halted transactions.

The crisis quickly ensnared the governing party. Peña, an economist by training who was elected president in 2023 and had close ties to the bank, resigned on Nov. 5. The Senate then voted unanimously to remove him from office, thereby stripping Peña of his parliamentary immunity. He was swiftly put under house arrest, charged with corruption and succeeded by his Vice President Pedro Alliana, who was sworn in to serve until 2028.

Meanwhile, the crisis has led to widespread protests, including outside Congress, with citizens accusing Peña and the ruling Colorado Party of “stealing” their savings.

When the regulator knows the regulated

Part of the story of Ueno is a tale of the closeness between political and financial elites in Paraguay.

Carlos Carvallo chaired Ueno’s predecessor bank before Peña appointed him Paraguay’s central bank president in 2023. Carvallo resigned on Nov. 3 and has since been charged with the same corruption crimes as Peña. For its part, the Paraguayan central bank says Carvallo recused himself from any Ueno decisions.

Yet the potential conflicts of interest ran much deeper. Peña previously directed Banco Basa, linked to Colorado Party leader and former President Horacio Cartes, who retains considerable influence and was instrumental in helping push Peña out of office. Finance Minister Carlos Fernández Valdovinos also served on Basa’s board. Local reporters had documented these revolving-door relationships early in Peña’s term.

Peña reportedly held a 1.58% stake in Ueno Holding, which shared its principal shareholder, Grupo Vázquez, with Ueno bank. His brother Francisco held shares in Luxembourg-based U Holdings, an indirect shareholder in the bank. Another shareholder was Juan Carlos López Moreira, Cartes’ former chief of staff. Both brothers exited in 2025.

Peña has denied any wrongdoing, while prosecutors are examining allegations concerning his former business interests and his administration’s financial supervision.

The inclusion of significant reserves of public funds made these connections especially consequential. Ueno held approximately $850 million in public funds, including $355 million from the country’s social security system, IPS, including health and retirement funds. It amounted to roughly 9% of IPS’s investment portfolio.

Under Peña-appointed chairman Jorge Brítez, IPS relaxed eligibility requirements for bank deposits in 2023 and removed a capital-based exposure limit in 2024. Over the same period, its deposits at Ueno rose sharply. Grupo Vázquez’s technology firm ITTI won at least $2.3 million in state contracts after Peña took office, versus $675,000 before. ITTI attributed the increase to business expansion and denied a conflict of interest.

Together these ties and regulatory changes raise important questions about regulatory capture and other potential conflicts of interest.

What the growth figures leave out

Paraguay’s economic gains are real. In August, the International Monetary Fund projected 4.4% growth in 2026 following 6.6% in 2025. Moody’s granted the country’s debt investment-grade status in 2024, and S&P followed in 2025. Hydroelectric power exports, agriculture and new infrastructure continue to underpin the economy.

Washington is also drawing Paraguay more firmly into its regional economic strategy. On Oct. 23, the country became the 26th signatory to the Pax Silica Declaration, an initiative involving critical minerals, hydropower and advanced computing infrastructure. While the announcement did not specify financing commitments, it shows how Paraguay’s resources and perceived political predictability are being positioned as strategic assets.

But growth figures and credit ratings say little about who shapes financial oversight or bears the costs of banking failures. Paraguay’s legacies of political patronage make it necessary to examine political and corporate connections and changes to public-fund investment rules.

The social toll and the Colorado question

Paraguay has been here before. Between 1995 and 1998, 13 banks and 35 financial firms closed, with direct costs estimated by the IMF at 10% to 13% of the country’s GDP. This preceded a smaller bank crisis in the early 2000s. Both ordeals exposed weak supervision and connected lending.

Paraguay’s deposit guarantee, which covers balances up to about $38,000, is meant to limit depositor losses, and the Paraguayan Central Bank insists that failure is isolated in the latest case. Yet account transfers have already strained the system, producing outages at several banking institutions.

Yet for most Paraguayans, the crisis was experienced not through technical financial or macroeconomic indicators but at the stark level of seeing from their phones that they couldn’t access their money. Wages, pensions and savings froze simultaneously. Young Ueno employees burned their company cards outside the Labor Ministry, demanding unpaid wages.

Riot police used pepper spray and rubber bullets against depositors marching on Congress. For small businesses that banked and paid staff through Ueno, the real economy stopped.

This widespread anger challenges the ruling party’s claims to the economic vision they cite as the engine for future growth. Whether it leads to institutional change or a reshuffle within the Colorado Party remains an open question. The test is how Paraguayan legislators and regulators will move forward and whether they separate banking supervision and public deposits from partisan and business networks.

In any case, the myth of the “Dubai of South America” has come under serious scrutiny. While the protests were noteworthy, the Colorado Party has for now managed to resolve its own internal crisis by quickly sacrificing key political elites, including the president.

Marco Castillo Ph.D., Paraguayan sociologist, recent graduate and former director of research at the Center for Latin American, Latino and Caribbean Studies at Graduate Center CUNY, and Sheyla Rios Galeano, a Ph.D. Student in human dimensions of natural resources, Colorado State University, contributed to this article.

Joel E. Correia, Associate Professor in Human Dimensions of Natural Resources, Colorado State University

This article is republished from The Conversation under a Creative Commons license. Read the original article.