The crisis began on November 3, 2026. At that time, millions of Paraguayans who attempted to log into the Ueno bank application found that they were no longer able to withdraw their funds. In just a few days, this financial issue rapidly escalated into a political crisis, with the Paraguayan president being ousted from power, placed under house arrest, and accused of several corruption-related crimes.

This political and financial crisis has exposed a core contradiction in Paraguay's recent economic development. Ueno is a bank that has been praised for expanding financial access for ordinary Paraguayans, but its growth was built on unusually close relationships with political elites and public institutions. Although the Ueno crisis came as a shock, there were actually clear warnings beforehand.

As scholars familiar with various aspects of Paraguay's contemporary politics, economy, and environmental development, we believe that this collapse raises troubling questions: who benefits from financial modernization, who controls it, and who bears the risks when it fails? How financial institutions grow, how regulators exercise their power, and how public resources are entrusted to private companies—these political relationships are key issues at the national level, especially in a country that has always presented itself to the international community as a model of economic stability.

A bank whose growth rate exceeds the speed of regulation

Ueno was established in 2021 as a digital lending institution, attracting customers with mobile banking services and cashback discounts. Its expansion has brought practical services to groups that have long been neglected by traditional banks, including rural customers. Compared to the limited practices of banks in the past, Ueno has also expanded the credit card market to low-income customers in an unprecedented way.

With the expansion of Ueno, Paraguay has also become increasingly attractive to investors due to its low tax rates, economic stability, and pro-business policies. The country is sometimes referred to as "the Dubai of South America" and has become a magnet for conservative opinion leaders, especially those from Brazil, who compare Paraguay's economic model to what they perceive as poor governance by left-wing governments in other parts of the region. In fact, under the leadership of President Santiago Peña, Paraguay has always been one of the most enthusiastic supporters of the Trump administration and its broader regional vision in Latin America.

But beneath the facade of financial stability, Ueno is standing on the brink of deeper-seated problems.

After accounting adjustments reduced the solvency ratio of Ueno to less than half of the statutory minimum requirements, the central bank finally took action. However, the problems had actually been evident for some time before that. In June 2026, a supervisory report released by banking regulators disclosed that approximately $146 million in loans had flowed to three companies associated with Grupo V, the controlling shareholder of Ueno. Some of these companies were later transferred to group employees; regulators raised questions about the collateral and the ultimate use of the funds.

The reason why these warning signs were not taken seriously raises another question: why didn't regulatory authorities have a better grasp of the situation, nor were they able to control risk exposures more effectively?

In any case, the issues with Ueno were exposed in a dramatic manner on November 2nd. On that day, the central bank placed Ueno under a disposition procedure, which is similar to bankruptcy but is directly managed by the Central Bank of Paraguay. The lending institution claimed to have nearly 3 million customers, accounting for about half of the country's population, and immediately ceased all transactions.

The crisis quickly implicated the ruling party. Peña, who has a background in economics and was elected president in 2023 and had close ties with this bank, resigned on November 5th. Subsequently, the Senate voted unanimously to remove him from his position, thereby stripping Peña of his parliamentary immunity. He was soon placed under house arrest and later prosecuted for corruption; Vice President Pedro Arias then took over and was sworn in to serve until 2028.

At the same time, this crisis sparked large-scale protests, including demonstrations outside of Congress, with the public accusing Peña and the ruling Red Party of "stealing" their savings.

When regulators understand those they regulate

The story of Ueno reflects the close relationship between Paraguay's political elites and financial elites.

Carlos Carvalho once served as the chairman of the bank that was the predecessor to Ueno. In 2023, Peña appointed him as the governor of the Central Bank of Paraguay. Carvalho resigned on November 3rd and was later accused of the same corruption charges as Peña. The Central Bank of Paraguay stated that Carvalho has refrained from making any decisions related to Ueno.

However, the potential conflicts of interest are far from limited to this. Peña previously headed Banco Basa, a bank that is associated with the leader of the Red Party, former President Ollasio Cartes, who still holds considerable influence and played a key role in pushing for Peña's removal. Finance Minister Carlos Fernández Bardovinos also served on the board of directors of Basa. Local journalists documented these revolving door relationships as early as the beginning of Peña's tenure.

It is reported that Peña holds a 1.58% stake in Ueno Holding, and the company shares the major shareholder Grupo V á zquez with Ueno bank. His brother Francisco holds shares in the Luxembourg-based company U Holdings, which is an indirect shareholder of that bank. Another shareholder is Juan Carlos López Morera, former chief of staff to Cates. Both brothers will withdraw in 2025.

Peña denies any improper conduct, while the prosecution is reviewing allegations regarding his former business interests and his role in government financial regulation.

The inclusion of a large amount of public funds makes these associations particularly important. Ueno holds approximately $850 million in public funds, including $355 million from the national social security institution IPS, which covers medical and retirement funds. This amount accounts for about 9% of IPS's investment portfolio.

Under the leadership of President Jorge Britts, appointed by Peña, IPS relaxed the requirements for bank deposit eligibility in 2023 and abolished the capital-based exposure limits in 2024. During the same period, its deposits in Ueno increased significantly. The technology company ITTI, which is part of Grupo V and zquez, secured at least $2.3 million in government contracts after Peña took office, compared to only $675,000 before that time. ITTI attributes this increase to business expansion and denies any conflicts of interest.

These changes in contacts and regulatory rules together raise important issues regarding regulatory capture and other potential conflicts of interest.

The parts that growth data doesn't mention

Paraguay's economic growth is indeed real. In August, the International Monetary Fund projected that the country's economic growth rate for 2026 would be 4.4%, up from 6.6% in 2025. Moody's awarded the country a debt investment-grade rating in 2024, followed by Standard & Poor's in 2025. Hydroelectric exports, agriculture, and new infrastructure continue to support the economy.

Washington is also increasingly integrating Paraguay into its regional economic strategy. On October 23rd, the country became the 26th signatory to the Pax Silica Declaration. This initiative covers key minerals, hydropower, and advanced computing infrastructure. Although the announcement did not specify any financing commitments, it indicates that Paraguay's resources and perceived political predictability are being positioned as strategic assets.

However, growth data and credit ratings do not indicate who is shaping financial regulation, nor who bears the costs of bank failures. Paraguay's long-standing legacy of political patronage makes it necessary to examine the connections between politics and business, as well as changes in the rules for public funding investments.

Social costs and the Red Party issue

Paraguay is not experiencing such a situation for the first time. Between 1995 and 1998, 13 banks and 35 financial companies failed, and the International Monetary Fund estimated that the direct costs were equivalent to 10% to 13% of the country's GDP. There was also a smaller bank crisis prior to this. Both crises exposed weaknesses in regulation and issues with related loans.

Paraguay's deposit insurance provides protection for balances up to approximately $38,000, and the Central Bank of Paraguay also insists that the failure in the latest case is an isolated incident. However, account transfers have put pressure on the system, resulting in interruptions at several banking institutions.

But for most Paraguayans, this crisis is not felt through technical financial or macroeconomic indicators; rather, it is experienced through the harsh reality of being unable to withdraw their funds from their mobile phones. Salaries, pensions, and savings have all been frozen simultaneously. Young employees, like Ueno, are burning company cards outside the Ministry of Labor, demanding the payment of their overdue wages.

Anti-riot police used pepper spray and rubber bullets against protesters marching towards the parliament. For small businesses that conduct banking transactions and receive salaries through Ueno, the real economy has come to a standstill.

This widespread anger challenges the ruling party's claims about its economic vision, which it regards as the engine for future growth. Whether it will ultimately lead to institutional change or merely result in a reshuffle within the Red Party remains unknown. The key lies in how Paraguayan legislators and regulatory authorities will proceed from here, and whether they will separate bank regulation and public deposits from partisan and business networks.

In any case, the myth of "South America's Dubai" has been seriously questioned. Although the protests are worth noting, the Red Party has currently managed to resolve its internal crises by swiftly sacrificing key political elites, including the president himself.

Dr. Marco Castillo, a Paraguayan sociologist and graduate, once served as the director of research at the Center for Latin America, Latinos, and Caribbean Studies at the Graduate Center of the City University of New York; Sheila Rios Gallegano, a doctoral student in the Human Dimensions of Natural Resources at Colorado State University, also contributed to the writing of this article.

Joel E. Corea, Associate Professor of Human Dimensions of Natural Resources at Colorado State University

This article is reprinted with authorization from The Conversation and is licensed under a Creative Commons license. The original text can be read here.