By Daniela Desantis and Lucinda Elliott
ASUNCION, Nov 6 (Reuters) - Pedro Alliana was sworn in as Paraguay's new president on Friday just as authorities put his impeached predecessor Santiago Peña under house arrest, the latest developments in a fast-moving political and financial crisis triggered by the collapse of a digital bank.
Prosecutors speaking outside Peña's house in Asunción said charges were still being determined but could include influence peddling. Peña was ordered to appear at the prosecutor's
office on Saturday morning.
Peña was ousted from the presidency about an hour beforehand in a unanimous Senate vote, with lawmakers citing questions over his past links to the collapsed digital bank ueno that had provided accounts for nearly half of Paraguay's population.
Although Peña offered his resignation on Thursday, the Senate chose to finalize the impeachment process rather than accept, and swiftly moved to install his second-in-command, Alliana.
By the time of his arrest, dozens of protesters had gathered outside Peña's residence. Police installed a security cordon around the property.
The turmoil began earlier this week when Paraguay's central bank intervened in ueno, whose customers include many people who had not previously had access to a bank account.
The bank had grown rapidly since launching in 2021. But questions had emerged over ueno's lending practices and its ties to Paraguay's political and financial elite — including Peña, who until last year was a shareholder in ueno's holding company, and the central bank chief Carlos Carvallo, who had headed ueno until 2023.
Prosecutors on Friday also issued an arrest warrant for Carvallo, who resigned earlier this week as authorities launched last-ditch proceedings to prevent the lender dissolving. Eight former ueno executives have already been detained.
Others from Peña's inner circle also resigned, including his interior minister, chief of staff and two advisers.
The impeachment charges that led to his removal alleged that Peña had conflicts of interest, manipulated regulatory oversight, diverted pension funds, and participated in an institutional cover-up involving the central bank.
Peña denied any wrongdoing and said the affair was a regulatory issue. The central bank has denied any conflict of interest, saying Carvallo recused himself from all decisions related to ueno.
FROZEN ACCESS TO FUNDS
The political crisis has spilled onto the streets, with demonstrators flocking to downtown Asuncion demanding accountability for ueno's collapse and faster compensation for depositors whose savings remain frozen.
Small groups of protesters gathered opposite the headquarters of the central bank on Friday, chanting "We want our money."
Those who have been unable to access their accounts include pensioners who receive state benefits through ueno. Peña earlier this week approved legislation to help accelerate payments to affected depositors and some account holders began recovering their money on Thursday.
Prospects for a lengthy political transition have drawn attention from investors, especially in neighboring Brazil, Paraguay's largest economic partner. Regulators have sought to reassure markets by guaranteeing most deposits and containing risks to the wider financial system.
A Brazilian government source told Reuters that Brazil's immediate concern was avoiding social instability in Paraguay and ensuring the banking crisis is resolved without triggering wider unrest.
"Protests over frozen savings will intensify if Peña's exit appears to grant him impunity or if payouts to depositors and pensioners stall," said Mariano Machado, Americas principal analyst at Verisk Maplecroft.
(Reporting by Daniela Desantis in Asuncion and Lucinda Elliott in Montevideo; Additional reporting by Aida Pelaez-Fernandez in Barcelona, Ricardo Brito in Brasilia and Kylie Madry and Natalia Siniawski in Mexico City; Editing by Nia Williams, Rosalba O'Brien, and Daina Beth Solomon)
