Paraguay's Trump-aligned president resigns amid bank crisis

Paraguay's Trump-aligned president resigns amid bank crisis

After being feted around Washington a mere two weeks ago, Paraguayan President Santiago Peña resigned Thursday amid ongoing impeachment proceedings over his irregular ties to a top digital bank that collapsed this week, locking out nearly half of the South American country’s population from its savings and pensions. The scandal over the now-insolvent ueno bank, which holds $850m in public funds and serves nearly 3 million customers, accelerated this week with the resignation of the country’s central bank president, former ueno executive Carlos Carvalho, as scrutiny mounted over its loans to individuals connected to Peña, who held a large stake in the bank’s parent company, Grupo Vásquez, until last year. The escalating political scandal rattles a quickly-growing economy nestled between Argentina and Brazil that has attracted foreign investors and significant Trump administration attention because of its immense hydropower resources for operating data centers; close ties to Israel and Taiwan; and eagerness to expand security cooperation with the U.S. Peña, a Trump ally and conservative economist, had for months dismissed scrutiny of ueno’s finances and conflicts of interest. Yet after the Central Bank’s intervention Tuesday, lawmakers passed legislation ordering authorities to accelerate deposit insurance payments to savers with funds trapped in ueno, whose customers have overwhelmed other lenders as they rush to open accounts and receive refunds on their deposits, sparking a nationwide crisis. Paraguayans took to the streets this week calling for Peña — the protegé of one of the country’s richest and most powerful men, former president Horacio Cartes (2013-2018), who chairs the ruling Colorado Party — to be jailed. State security forces were soon called in to repress the protests with tear gas and water cannons. Cartes, a key powerbroker who recently split with Peña and called for his impeachment, was sanctioned in 2023 by the Biden administration for "participating in corrupt activities before, during, and after his term as president, and obstructing a major international investigation into transnational crime to protect himself.” Cartes also allegedly maintained close ties with Hezbollah cells operating in the country's tri-border area with Argentina and Brazil, where Cartes' companies — themselves sanctioned in 2024, leading to the expulsion of U.S. Ambassador Marc Ostfield in retaliation — have been involved in money laundering for the multi-billion-dollar illicit cigarette trafficking business. Paraguay has long been considered among the world’s most crime-ridden and corrupt countries. Last October, Cartes’ sanctions were suddenly removed and his business empire delisted by the Treasury Department following a multipronged and largely unreported lobbying campaign carried out by a loyal Cartes lawmaker, Gustavo Leite. He had been appointed Paraguay’s ambassador to Washington in 2025 and has since returned to the capital, Asunción, after securing Cartes’ visit to the U.S. and meetings with Secretary of State Marco Rubio and Deputy Secretary of State Christopher Landau this July. The stunning removal of sanctions on Cartes would have flown completely under the radar if three Democratic senators had not condemned the move as a blatant abuse of the Global Magnitsky Human Rights Accountability Act. Paraguay’s political rupture marks a stunning development for one of South America's most fervent supporters of Israel and a setback for the Trump administration’s aggressive push to restore U.S. dominance across the hemisphere, commonly dubbed the Donroe Donroe. President Peña was one of the few foreign leaders to attend Trump's inauguration, and a flurry of Trump officials and GOP lawmakers have traveled to Paraguay to bolster security and trade ties as the two countries over the past year signed a status of forces agreement, a civil nuclear energy deal, a “safe-third country” arrangement, and a deal to open an FBI anti-terror base. In the lead-up to his delisting, Cartes sought to dispel alleged Hezbollah links by traveling with Leite to Jerusalem for an anti-semitism summit at Israeli Prime Minister Benjamin Netanyahu’s request, shortly after Peña returned the country’s embassy to Jerusalem. Peña’s government also coordinated a series of meetings between Israeli Foreign Minister Gideon Sa’ar and his Latin American counterparts, and formally designated Iran’s Islamic Revolutionary Guard Corps, Hamas and Hezbollah as terrorist organizations — moves that the Israeli Foreign Ministry and the State Department immediately applauded. In just over a year and a half, Rubio and Landau have spoken or met with former President Cartes, Peña or Foreign Minister Ruben Ramirez Lezcano — who last year Rubio favored to become the new Secretary General of the Organization of American States — on at least a dozen occasions, a highly atypical rate for a country of just over 6 million people. Last month, Landau traveled to Asunción, where he announced a major data center and uranium mining deal; aerial interception and border management assistance; and funds to operationalize a counter-terror center and an international narcotics and law enforcement hub. Peña’s rapid fall from power comes on the heels of the Democratic Party’s massive victory in Tuesday’s U.S. midterms elections, Brazilian President Luis Inacio Lula da Silva’s surprise reelection in Brazil the week before, and plummeting approval ratings of recently elected Trump-aligned presidents across South America. These trends all point toward a shift in the regional balance of power that has produced unprecedented levels of ideological alignment across the Western Hemisphere.