Strong guaraní masks banking crisis as Paraguay's financial supervision faces scrutiny.

The guaraní emerged this week as Latin America's best-performing currency, buoyed by a steady flow of foreign exchange from agro-industrial exports, while the Banco Central del Paraguay (BCP) confirmed cumulative economic expansion of 5.7% through the end of August — a figure the International Monetary Fund has elevated to an annual projection of 4.5%, placing Paraguay among the region's most vigorous growth engines. Yet behind that curtain of macroeconomic solidity, a financial governance crisis is unfolding that today commands the attention of analysts, business leaders and legislators alike: the Ueno Bank case, an institution that manages more than USD 800 million in public deposits — including funds from the binational entities — and in which the BCP has detected maneuvers to conceal ties with related companies.

The convergence of these two stories is no coincidence: it lays bare the structural tension running through Paraguay at this moment, an economy with enviable macroeconomic numbers but regulatory and supervisory institutions facing serious questioning. According to ABC Color, Itaipú — the Paraguayan-Brazilian binational whose energy output is one of the pillars of the country's low-cost electricity model — stopped reporting which banks hold its funds precisely when its balance in Paraguay jumped from USD 57 million to USD 537 million. The figure is striking on its own; its opacity is more so. Former BCP president Benigno López publicly warned of the risk that such exposure could pose to the Instituto de Previsión Social (IPS), whose pension funds may be deposited at Ueno Bank, and sharply criticized the BCP's report to Congress. The head of the Unión Industrial Paraguaya (UIP) was more direct: he fears the crisis will hit employment and the real economy if not managed transparently.

The meeting convened by President Santiago Peña with representatives of the banking system and the BCP sought to contain the reputational fallout, though participants revealed a carefully contained narrative, without concrete commitments regarding the entity's future. Against that backdrop, the dollar opened the week lower — the guaraní appreciated against the greenback, extending the trend of recent weeks — which in normal circumstances would be a positive signal for monetary stability, but which today is generating sectoral friction. The Unión de Gremios de la Producción (UGP) called on the economic team for greater exchange-rate predictability, describing the dollar's decline as an appreciation "without a parachute" that erodes export competitiveness. The motorcycle industry, one of the sectors most dependent on the import-price-domestic-consumer equation, joined the complaint.

The fiscal agenda offers no easy relief either. In Congress, the Bicameral Commission is advancing its review of the 2027 General Budget of the Nation, with four institutions defending their budget requests. The Supreme Court of Justice is asking for an additional USD 57 million for 941 new positions and salary adjustments for some 8,000 officials, a demand that public finance specialists are already warning will deepen the structural deficit. For its part, the Ministerio de Agricultura y Ganadería (MAG) will receive USD 71 million while warning of the impact of the El Niño phenomenon on the upcoming agricultural season. Fitch warns: Paraguay's dependence on agricultural output — which accounted for much of the 5.7 points of cumulative growth — makes it as much a climate variable as an economic one.

The social spending picture is no small matter either: the Central Government executed USD 4.816 billion in the first nine months of the year on social programs, according to ABC Color data, raising pressure on the fiscal rule in a context where the MEF this week placed PYG 230.527 billion in Treasury Bonds and paid USD 83 million to suppliers, signaling that public-sector liquidity remains active but under growing tension with debt commitments. Fitch Ratings, as Última Hora reported, had previously warned that the Caja Fiscal reform was insufficient to guarantee long-term pension sustainability.

On the energy front, Yacyretá opened its spillway in response to rains that quintupled normal projections over the Paraná River, adding an element of near-term operational uncertainty. Paradoxically, Paraguay maintains the third-cheapest residential electricity in the world at USD 0.056 per kilowatt-hour, a competitive advantage the government is seeking to capitalize on with foreign investors, especially in the framework of the European Union-Mercosur agreement, where the UIP estimates the country could attract significant industrial investment from the relocation of manufacturing plants out of Europe.

In that vein, President Peña announced this week the merger of the Ministerio de Industria y Comercio (MIC) with the Secretaría Nacional de Turismo (Senatur) as part of what the MIC head called "deep reforms" for industry, accompanied by new credit lines. Meanwhile, BCP president Óscar Lovera and Economy Minister Carlos Carvallo are participating this week in the annual meetings of the IMF and the World Bank in Thailand, seeking to consolidate Paraguay's narrative as a stable and open economy precisely when the credibility of its financial supervision system is under scrutiny.

What lies ahead will set the tone for the rest of the quarter: the resolution of the Ueno Bank case will determine whether Paraguay can contain the institutional damage without undermining confidence in the banking system as a whole; the budget negotiations in the Bicameral will define whether the government can maintain fiscal discipline in the face of spending pressure that is not easing; and the trajectory of the exchange rate — with a guaraní strengthening in line with exports but unsettling productive sectors — will test the coordination between the BCP and the MEF in a year when the margin for error is narrowing.