OPINION. 'Central Banks: The Paraguayan Warning' (Michel Santi)

For thirty years, it has been fashionable for central banks to be independent of governments. They are more rarely asked to be banks. Paraguay has just demonstrated – in four days – what the cost of the two dependencies combined.

Not long ago, the country's main stadium was named after a bank: Ueno. This establishment sponsored the football selection and claimed 2.9 million customers, or six out of ten adults in the country.

Tuesday, November 3, the central bank seized Ueno, whose application, bank cards and transfers were simultaneously disabled. The same day, the governor of the central bank, Carlos Carvallo, resigned, before the president of the country, Santiago Peña, in turn presented his resignation on Thursday – which Congress refused. Resigning, like any former president, he would have become a senator for life, except that he found himself indicted within the hour by the deputies.

On Friday, in his absence, the Senate unanimously dismissed him. The same evening, the prosecution, which suspects the two men in particular of breach of trust, ordered their detention. The former governor went to the police; the former president ended the night at the Presidential Escort regiment, his security no longer being guaranteed at home in the face of demonstrators.

Four days were enough to go from the palace to the barracks.

However, the bankruptcy is not mysterious, because Ueno lent to the companies of its owners, well beyond the legal ceilings and without sufficient guarantees. Once the accounts were adjusted, the solvency ratio fell to 5.56%, for a regulatory minimum of 12%. The mystery lies elsewhere: how was Ueno able to lend on such a scale for a year?

Carlos Carvallo chaired the financial company from which Ueno came until August 2023, before taking the helm of the central bank, appointed by Mr. Peña – himself a shareholder in Ueno's holding company until spring 2025. If the central bank assures that its president abstained in the files of his former employer, the loans continued.

Public money eventually followed: Ueno held more than $800 million in public funds, the equivalent of about an eighth of the country's annual tax revenue. More than 350 million came from the retirement and health fund, whose investment rules had been relaxed twice, in 2023 then in 2024. According to the complaint investigated by the prosecution, the deposits of this fund with Ueno were multiplied by more than twenty-five. In October 2024, Mr. Peña defended these investments – while he was still a shareholder of the bank.

Machine-translated from French