Guaraní plunges to worst global performer as Ueno Bank collapse triggers institutional crisis.

The guaraní has plunged to become the world's worst-performing currency, according to Bloomberg, at the precise moment Paraguay is navigating the deepest financial and institutional crisis of its democratic era: the collapse of Ueno Bank has simultaneously undermined confidence in the banking system, exchange rate stability, the integrity of the central bank, and the political continuity of President Santiago Peña's government.

What began as the resolution of a mid-sized financial institution has exposed a risk architecture that extends well beyond a single bank's balance sheet. The Banco Central del Paraguay (BCP) initiated formal resolution proceedings against Ueno Bank after uncovering a scheme of loans to companies linked to Grupo Vázquez, headed by Miguel Vázquez, that progressively hollowed out the institution. Prosecutors have charged 27 individuals, including former BCP President Marco Aurelio González, who resigned his post and faces charges on three counts. Authorities raided the offices of Itti, the group's technology arm, seizing digital evidence, and ordered asset freezes against executives and shareholder companies. Ueno Bank's president's attorney argued his client did not sit on the credit committee — a position investigators will have to either refute or confirm.

The fiscal dimension of the scandal is what sets this episode apart from any ordinary bank failure. Among the trapped depositors are Itaipú Binacional, with roughly USD 163.8 million and PYG 115.2 billion frozen; the Administración Nacional de Electricidad (ANDE), whose infrastructure funds and retirees' cash reserves have been immobilized; the Instituto de Previsión Social (IPS), responsible for paying pensions and year-end bonuses to thousands of beneficiaries; Petropar; Senave; and the Caja Fiscal of the Ministerio de Economía y Finanzas (MEF) itself, which acknowledged holding PYG 373.838 billion — equivalent to roughly USD 60 million — in the institution. The MEF filed a criminal complaint to recover those resources and stated that the placements had been made through ordinary liquidity management mechanisms, which raises fundamental questions about the state's internal controls.

The BCP, under interim president Liana Caballero following González's resignation, has begun advance payments through the Deposit Guarantee Fund. According to the latest data, more than 50% of Ueno's clients have already received their advance, and the number of affected customers served has surpassed 1.2 million. The process is consuming roughly 50% of the guarantee fund's total resources, underscoring the systemic magnitude of the episode. The Asociación de Bancos (Asoban) praised the speed of the response but criticized the BCP's belated reaction — a view shared by most of the organized business community. The Cámara Americana de Comercio (AmCham), the Unión Industrial Paraguaya (UIP), and the Asociación Rural del Paraguay (ARP), among others, have demanded an investigation without privileges, protection for private savers, and that the guarantee fund not be used to cover deposits from public entities, whose exposure to Ueno Bank is widely perceived as a state management failure.

The crisis carries immediate political ramifications. Santiago Peña's residence in San Bernardino was raided as part of the investigation, though the government has rejected any notion that the president bore direct responsibility in the scheme. The president of the Chamber of Deputies, Pedro Alliana, publicly urged Peña to resolve the financial crisis and pointed to the BCP as part of the problem, while opposition sectors have widened their accusations and pushed for impeachment proceedings. Peña responded with institutional changes: he announced reforms to the BCP and enacted a law to accelerate payments to savers. In parallel, he accepted the departure of Economy Minister Carlos Fernández Valdovinos — who initially withdrew his resignation before confirming it definitively — and appointed Óscar Lovera in his place. Lovera takes office with a clear mandate for fiscal management in what the government itself has dubbed a "war economy": a structural deficit dragged from administration to administration, and revenue collection under strain.

Moody's warned that the Ueno case highlights governance weaknesses in Paraguay, though it noted it expects an orderly transition. S&P Global Ratings, for its part, indicated that the political transition does not alter the country's sovereign rating. These nuanced messages from the rating agencies reflect a contradictory reality: an economy the BCP reported growing at 5.7% year-to-date through August, which the IMF projects will expand at nearly double the global average, but which now faces a confidence shock with microeconomic effects already visible. Businesses in areas of Grupo Vázquez's influence are reporting sales drops of up to 70%, with potential closures on the horizon. Uela, the airline tied to the group, suspended operations and left 130 employees without work. The Banco Nacional de Fomento's core banking tender, which had been tracking toward Itti, is now on hold. Ueno's bonds issued in New York raise the prospect of international lawsuits that could affect Paraguay's access to external capital markets — a particularly relevant concern given the country's plans to issue sovereign debt in 2027.

What to watch in the coming weeks is the speed with which the MEF and the new BCP leadership manage to narratively separate Paraguay's macroeconomic strength — real and documented — from the Ueno episode, which is in essence a supervisory and corporate governance failure. The debate over the 2027 General Budget in the Chamber of Deputies, which will unfold amid this crisis, will be Lovera's first major test. The trajectory of the guaraní — already registering the largest decline against the dollar among the world's currencies in this episode — and the pressure on the FX market stemming from the mass payout of deposits will be the most immediate indicators of whether crisis management succeeds in containing the reputational damage before it translates into a deterioration of the fundamentals.