Paraguay's newly sworn-in President Pedro Alliana has pledged full financial compensation to millions of customers affected by the collapse of digital lender Ueno Bank, as the country's banking crisis triggered a political upheaval that led to the removal and arrest of former President Santiago Peña.

Alliana, who previously served as vice president, took office on Friday during an extraordinary session of Congress, shortly after lawmakers voted unanimously to impeach and remove Peña over his alleged involvement in the banking crisis.

In his first presidential address, Alliana promised that those affected by the financial disaster would not be abandoned.

"What I come to promise is concrete: those compatriots who today are going through a difficult moment as a result of this financial disaster will be fully compensated. We will not leave them alone," he said after receiving the presidential sash from Senate President Basilio Núñez.

Shortly after his removal, Peña was arrested at his private residence in Asunción, the country's capital. The Prosecutor's Office had requested his immediate detention over allegations of conflict of interest, illegal negotiations and embezzlement linked to the collapse of Ueno Bank.

Before the Senate's 44-0 vote against him, Peña submitted his resignation to Congress in an apparent attempt to ease the political crisis.

"I resign to avoid further damage to the country and to help restore tranquility to Paraguay," he said in his resignation statement, adding that no individual should become a source of further division or instability.

The political crisis erupted earlier this week after the Central Bank of Paraguay (BCP) intervened in Ueno Bank, citing serious deficiencies in its financial solvency.

The bank's collapse has frozen the assets of approximately 2.94 million customers, nearly half of Paraguay's population, as well as funds belonging to major public institutions and pension funds, including the state-run Social Security Institute.

Lawmakers accused Peña's administration of allowing government agencies and public pension funds to deposit hundreds of millions of dollars into Ueno Bank in excess of legal limits, despite warnings about insider lending practices and inadequate collateral.

In his first executive directive, Alliana instructed financial regulators to accelerate compensation arrangements, prioritizing low-income account holders and small depositors who have been hardest hit by the financial crisis.

Alliana is expected to serve the remainder of the 2023-2028 presidential term, facing the immediate challenge of restoring public confidence in Paraguay's financial system and addressing widespread concerns over the security of bank deposits.

The banking collapse has plunged the South American country into one of its most serious political and financial crises in recent years, raising questions about financial oversight, government accountability and the protection of public funds. (ILKHA)