Paraguay is in the grips of its worst political crisis in years, with President Santiago Pena submitting his resignation on Thursday following a banking scandal.
Pena said in a recording that he was resigning, "with the stability of our country, social peace, and the need to preserve our democratic institutions in mind".
The crisis could undermine Paraguay's image as a stable economic bet in the region, with the country trying to court investment in energy and mining, including critical minerals. In late October, it joined the US-led US Pax Silica program to secure supply chains that include critical minerals. In August, it began talks with the US to sign an agreement on nuclear energy.
The government has also been working to attract the first private investment in power, with a 140MW tender for solar power scheduled for the first quarter of 2027.
The crisis, months in the making, exploded on 2 November when the central bank said that it would intervene in digital bank Ueno. The bank had 2.94mn clients, equivalent to 63pc of Paraguay's adult population.
Pena has been closely linked to the bank since the previous decade, when he was finance minister. After his election to a five-year term in 2023, he named Ueno chief executive Carlos Carvallo to head the central bank.
The president tried to distance himself from the bank, but the scandal only deepened. He called for Carvallo's resignation and submitted emergency legislation to the legislature to ensure deposits were honored. Adding to the problem, the government under Pena moved a large amount of the state's pension funds to Ueno. At the time of the intervention, Ueno held 11pc of pension funds, one point above the legal limit.
Opposition lawmakers threatened to impeach him and might still try, with senator Esperanza Martinez calling on colleagues to reject Pena's resignation and hold impeachment hearings for him and vice-president Pedro Alliana.
It is a long shot, with Pena's Colorado party holding 48 of the 80 seats in the lower house and 23 of 45 seats in the senate. Alliana will serve out the term through the next elections in 2028.
The Ueno scandal is not the only international issue Alliana would inherit. It faces arbitration from UK-listed Atome after the government reneged on a power purchase agreement (PPA).
Atome secured more than $600mn in financing earlier this year for a 260,000 metric tonnes/yr project to produce calcium ammonium nitrate fertilizer. It was contingent on a 145MW PPA agreed to with the state-owned power utility Ande, but Pena in June repealed decrees that allowed Atome to sign a contract.
Atome arbitration claim states that Paraguay violated its bilateral investment treaty with the UK.
Markets pause
Paraguay's fuel importers, distributors and traders have adopted a wait-and-see approach following Pena's resignation, suspending new negotiations for both fossil fuels and biofuels.
Market participants said it is too early to assess the crisis' impact, especially on the foreign exchange rate.
One importer said the sharp decline in Nymex heating oil and RBOB futures contracts currently more than offsets the effect of the weaker Paraguayan currency. Paraguay has no domestic crude production or refining capacity and relies entirely on imports to meet its fuel demand.
Ethanol market participants expect the situation to prompt pricing increases on both corn and sugarcane-based volumes. Producers are closely monitoring any blending policy changes promoted by the new administration.
