finance

Paraguay’s Ueno Bank meltdown and political crisis put Latin America in the midst of a governance reckoning.

When Ueno Bank’s sudden insolvency froze accounts for nearly 3 million people and toppled Paraguay’s presidency last week, it served as a brutal stress test for Latin American banking and raised urgent questions of institutional credibility, political cronyism and central bank independence.

Santiago Peña — removed as Paraguay’s president on Nov. 6 — is in pretrial detention at a military facility in Asunción after being charged in connection with Ueno Bank’s collapse. Last week’s credibility shocks also threaten to steepen yield curves and strain the limits of emerging-market central bank independence.

“Will central banks do their governments’ bidding?” William Jackson, Capital Economics’ chief emerging markets economist, wrote in a note to clients last week. Concerns about monetary policy credibility in the region’s two largest economies, Brazil and Mexico, could lead to weaker currencies and steeper yield curves, he explained.

No Accounts, No Groceries

Paraguay’s Congress moved quickly to rectify what it could. On Monday, it approved the appointment of economist Jorge Schreiner as the country’s new central bank governor. Schreiner was nominated earlier that day by Peña’s successor, President Pedro Alliana, after the dismissal of former central bank chief Carlos Carvallo Spalding.

Carvallo previously served as CEO of Ueno and oversaw Ueno’s transition from fintech to a full-fledged bank in 2023. Peña appointed him central bank chief that same year.

But the damage to Paraguay was already being felt by more than 60% of the country’s adult population who had accounts with the bank. After all, Ueno was Paraguay’s sixth-largest lender. When Ueno became insolvent, depositors immediately lost access to their funds.

“The collapse of Banco Ueno has been devastating to the people of Paraguay,” said Vinicius Okada da Silva, an assistant teaching professor of economics at the University of Tampa, in an email to Global Finance.

Reports from Brazil’s news conglomerate Globo, he added, show that “families couldn’t even buy food for the day because all their money was in the bank.”

Pensions Are Also Problematic

More than $300 million in public pension funds was held at Ueno, Okada said. On Monday, teachers protested over roughly $60 million in pension funds tied up at the bank. The government has pledged to cover up to $38,000 per depositor.

Okada said that is probably enough for most customers, but larger depositors have no guarantee they will be made whole.

“The biggest issue is the uncertainty the population and other institutions will face about when, if at all, they will get their money back,” he said.

There’s also the stigma associated with the cozy relationship between politics and private enterprise. “It misaligns the incentive a public official has, which is to improve the welfare of the population, with the incentive of the firms, which is to make profits,” he added.

Prosecutors have charged Peña and Carvallo with breach of trust, and both deny wrongdoing.

Contagion Risks Aren’t Likely

Capital Economics’ Jackson said the failure “doesn’t appear to point to broader financial stability risks.” He noted that the resolution is moving quickly, Paraguay’s banking sector is well capitalized, the current account is in surplus, and government debt is below 40% of gross domestic product. Paraguay’s currency, the guaraní, has fallen, and its bonds have sold off.

The bigger concern, Jackson said, is “whether a period of political uncertainty lies ahead that could stymie the reforms that have propelled strong growth.”

According to the IMF’s October 2026 World Economic Outlook, Paraguay’s real GDP is projected to grow by 4.5% in 2026. Yet financial consultants argue that institutional cleanup is long overdue.

“Ueno is the tip of the iceberg when it comes to cronyism and dangerous cartelization in Paraguay,” said Fergus Hodgson, author of “The Latin America Red Pill” and a financial consultant with Econ Americas. “Cleaning out these shortfalls will be part of Paraguay’s healthy development, and it needs to be done if Paraguay is to continue to be a hotbed for foreign investment.”

What’s Next

A broad loss of confidence could still trigger bank runs or push up borrowing costs, Okada warned.

“Fintechs do a lot of good, especially by providing credit and loans to poorer people, but that also means they need to take on more risk to succeed,” he said. “Combine that with the corruption already present in the region, and it can lead to disaster.”

In Brazil, allies of President Luiz Inácio Lula da Silva have reportedly warmed to a proposal by Brazilian economist André Lara Resende to cut the benchmark interest rate and reduce the government’s borrowing costs.

While Jackson of Capital Economics expects the plan to be rejected, “the mere discussion suggests the government is seeking ways to avoid major austerity.” While the debate continues, he said, “It’s hard to see the central bank resuming its easing cycle imminently.”

Last week, the Bank of Mexico, or Banxico, cut its key rate by a quarter of a percentage point to 6.25%.

Jackson called the move “hard to square with recent developments” and said questions about whether Banxico is favoring growth over its inflation target “should be taken seriously.” Still, he said there is “no smoking gun.” Unlike in Turkey, Colombia, and Brazil, Mexico has seen no “clear and explicit demands” from its president.

Currently, Banxico’s inflation projections for 2027 and 2028 are below even the lowest forecasts in the central bank’s own survey of analysts. Capital Economics now expects the peso to weaken to 20 per dollar by the end of 2027, down from about 18.7 now.

Another item to watch next month is the uncertainty over Jonathan Heath’s replacement. Heath is a hawkish Banxico board member whose term began in January 2019 and expires in December.

Anthony Noto covers corporate finance and private credit. Contact him at anoto@gfmag.com.

A potential TPS lapse threatens billions in remittances, posing a major shock to Central America.

This article appears in the November issue of Global Finance Magazine.

Hundreds of thousands of Salvadoran and Honduran nationals stand to lose their temporary protected status (TPS) in the U.S., along with their work permits, leaving them jobless and subject to deportation. The TPS lapse would be a calamity for the economies of their home countries as well, where remittances represent 27.5% and 30.1% of GDP, respectively, according to the World Bank.

Haitians and Venezuelans have already lost their TPS designation. While the U.S. government argues that the security situation in El Salvador has improved, a state of exception has been in place since March 2022, leading to over 93,000 arrests, mostly of young males.

“El Salvador’s [TPS] designation was set to expire on September 9, but the Department of Homeland Security failed to publish its decision within the statutory timeframe,” said Alejandro Kaffati, independent economic analyst. “This is an extension by default rather than a substantive decision, so uncertainty persists.”

The situation for Hondurans is clearer. The U.S. announced termination of their TPS designation in July 2025, and it took effect two months later. A federal judge overturned the decision, but a Supreme Court ruling regarding Haiti and Syria in June 2026 restricted judicial review. 

U.S. authorities have said there will be no further extensions or grace periods, despite Honduran President Nasry Asfura’s pleas for an orderly return and continued work permits. 

“We ask the United States to analyze each case. They are exemplary citizens who work hard, have adapted, and have respected American laws,” Asfura said in an August press conference. “We have to prepare, we have to welcome them here, if that is the case, to open our doors to them.”

‘A Significant Shock’

Incomplete data and limited U.S. enforcement capacity make mass deportations unlikely, Kaffati argued. But losing TPS and work authorization would force thousands into informal work. Lack of census data also affects economic projections for a sub-region—El Salvador, Honduras, and Guatemala—that is forecast to receive over $51.6 billion in remittances this year. 

“According to my estimates, if between 55,000 and 70,000 people stopped sending approximately $334 million to $425 million, it represents between 0.5% and 1% of GDP,” said Kaffati. “It is a significant shock, yet manageable.”

A study last fall by Ian Walker, a consultant and advisor to Sendas, a Honduran think tank, concluded that returning migrants should be viewed as assets in the region. But reaping the benefit requires coordination of private-sector investment, public policy, and reliable institutions. In May, the Honduran government approved a Special Law for Facilitating the Return and Protecting the Assets of Honduran Migrants. 

Having spent some 20 to 25 years in the U.S. labor market, many returnees will bring skills with them that they can utilize in fields like business process outsourcing, construction, tourism, and logistics linked to nearshoring.

“Remittances have served as a substitute for employment policy,” said Kaffati. “For 25 years, the economy exported workers rather than creating jobs.  More than 3 million Hondurans rely on remittances. An economy can adapt to a gradual shock, but an abrupt contraction leaves no room to react.”

Other countries whose citizens face the loss of their TPS designation by the end of this year include Ukraine, Lebanon, and Sudan. 

Nic Wirtz is a contributing writer based in Guatemala.