Paraguayan President Santiago Pena has resigned after the takeover of a bank linked to the US-allied leader blocked almost half the population from accessing their money.

The Central Bank's seizure of Ueno Bank two days earlier froze the deposits of some three million people, including pensioners, and sparked angry demonstrations across the country.

Thousands of Paraguayans gathered outside Congress on Thursday to protest against the president, who is still technically in power as his resignation awaits parliamentary approval.

"Give back the money," they yelled. Earlier demonstrations featured clashes with the police, who used tear gas and water cannon on the crowd.

"My family ran out of money, we don't have any cash. Santi [Pena] is a criminal, he has to go to jail," 21-year-old student protester Andres Maldonado said.

Lawmakers voted unanimously on Thursday to launch impeachment proceedings against Pena over the crisis, alleging misconduct and a conflict of interest in dealings with the bank to which he is tied.

The right-wing president said he would attend his impeachment trial, which is set to begin on Friday, after earlier apologising to the people of Paraguay.

The central bank said it took over Ueno due to a severe capital shortfall, in order to "protect depositors and preserve the stability of the financial system."

"Ueno approved a loan for us to buy our first house. But the funds were never disbursed, and now we have nowhere to live," said 26-year-old Nadia Gonzalez, a mother of three.

Long lines of people trying to withdraw their money from Ueno branches snaked down Asuncion's streets on Tuesday and Wednesday.

Pena owned shares in a group that controlled the bank, but he sold them last year.

He had attempted to ease tensions by requesting the resignation of Central Bank president Carlos Carvallo, who consented, and setting a five-day limit for the return of funds. Neither measure proved sufficient.

Congress called an extraordinary session of both chambers Thursday to decide whether to accept Pena's resignation or reject it and proceed with the impeachment process. But the session failed to reach a quorum, so the vote did not go ahead.

A later extraordinary session scheduled the impeachment trial to begin on Friday morning. Vice President Pedro Alliana is set to take over. (AFP)





Edited by Azam Khan