Index trend
Previous quarterly editions
Expropriation Risk: 54 54 55 54 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:36 36 36 36 ►Exchange Transfer and Trade Sanction Risk: 55 55 55 54 ►Sovereign Default Risk:56 56 56 47 ▼
Overall Risk Temperature: 51 (Medium -3) TREND ▼
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
1
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
Brazil is not a significant user or victim of gray zone aggression. The country’s foreign policy — focused on diplomacy, cooperation and dispute settlement through legal process — is well established across party lines and has been consistently upheld by different administrations since Brazil’s return to democracy in 1985. Article 4 of Brazil’s constitution requires that the country abides by the following principles in its international relations: national independence, human rights promotion and protection, self-determination, non-intervention, equality among states, peace, peaceful resolution of conflicts, fighting against terrorism and racism, international cooperation and concession of political asylum.
Despite recent concerns with Venezuela, including the refugee crises and its leadership’s military threats toward Guyana over disputed territory, there are no relevant interstate conflicts in South America or with Brazil that would prompt the use of gray zone aggression. In addition, Brazil has worked over the decades to ensure that the continent is a zone free of weapons of mass destruction and to help its neighbors solve conflicts and disputes through diplomacy and process-driven institutions.
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The risk of traditional expropriation is very low due to a strong legal framework in place and Brazil’s commitment to an open investment policy, with national treatment of foreign investors guaranteed by the constitution.
However, contract enforcement continues to be an issue due to time-consuming and costly judicial enforcement proceedings. In late 2023, congress approved a new legal framework for loan guarantees that is expected to improve contract enforcement. The regulatory burden also continues to be an issue, although the risk of government-induced expropriation through regulation is very low as key sectors are regulated by independent agencies with a clear congressional mandate.
Nonetheless, the growing conflict between Brazil’s Supreme Court and the social media platform X increased the perception of judicial overreach and risk of expropriation. The Supreme Court ordered X to remove certain profiles deemed to be threatening Brazilian democracy and conducting unlawful activities. Elon Musk denounced the court’s orders as authoritarian and made under seal, with no due process and transparency. X decided to remove its legal representative from Brazil and, as a consequence, was banned by the Supreme Court.
One of the concerning elements of this dispute is that, because of it, the Supreme Court decided to freeze part of Starlink’s cash in its Brazilian account and transfer it to the Brazilian federal government — although Starlink is a company not related to the case, but linked to it only by a shared investor (Elon Musk). This latter court decision was seen by part of the Brazilian legal community as unlawful.
Despite former President Jair Bolsonaro’s clashes with other federal powers, intermittent threats to democracy with support from some members of the armed forces, political radicalization and the invasion of the palaces of the three branches of power by a pro-Bolsonaro mob in January 2023, there have been few significant episodes of political violence in Brazil.
President Luiz Inacio Lula da Silva’s administration is negotiating measures with Brazil’s Congress to better shield the political system from what it perceives as undue influence by the armed forces. One of the proposed measures, introduced in the Senate, is a constitutional amendment that mandates any member of the military running for office to be automatically transferred to the reserve.
The armed forces continue to voice their obedience to the constitution, and there is no signal of threat from the military leadership even though, at this point, it is clear that a few of its members were involved in a 2022 planned coup by Bolsonaro and his allies.
Brazil continues to avoid direct experiences of terrorism. The country is ranked at 49 out of 89 in the 2024 Global Terrorism Index. Nonetheless, Brazil has improved its legal framework during the past decade to criminalize terrorism and terrorist financing as well as to identify and freeze terrorist assets. Brazil also has extensive counterterrorism cooperation with other countries, and its federal police recently arrested individuals suspected of having financed and supported Hezbollah.
Organized crime continues to be a major source of insecurity and the main public safety concern. Brazil’s three largest criminal groups — the Capital First Command (PCC), Red Command (CV) and the Family of the North (FDN) — dominate drug trafficking directed both to domestic consumption and foreign sales. The country is not a major drug producer but has a large market and is a major transit route of cocaine distribution to Europe. In addition, local-level paramilitary groups are relevant criminal organizations, specifically in Rio de Janeiro. Recent trends show a growth in organized crime in the north and northeast regions of Brazil as well as the spilling over of paramilitary groups from Rio de Janeiro into other Brazilian states.
Another recent concerning trend is the PCC’s reach in the Brazilian political system at all levels of government — local (municipal), state and federal. The group seems to be actively financing campaigns of several candidates and developing relationships with others. This allegedly includes one of the main candidates for mayor of São Paulo, Brazil’s largest city.
Land property-related crimes continue to be an important source of insecurity, in particular in the countryside and in states in the country’s agricultural frontier in the north and midwest regions.
Brazil faces no multilateral or unilateral sanctions of any kind, nor state-sponsored boycotts. The threat of sanctions, particularly on trade, connected to the country’s commitment to protect the Amazon biome decreased with the election of a pro-environment administration in 2022.
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Brazil eliminated its government (combined federal, state and local) deficit in 2021 after eight consecutive years of deficits. However, this was mainly the result of increased state and local government tax revenue due to the COVID-19 pandemic and high inflation. While the government surplus was maintained in 2022, substantial government deficits returned in 2023 and 2024.
To counter the large government deficit foreseen last year, the Lula administration adopted a new fiscal framework. The central bank reduced the benchmark interest rate by 350 basis points over seven meetings but stalled the process in view of growing concerns over fiscal policy, future inflation and the world economy.
While the fiscal policy scenario is still unclear, even after the new fiscal framework’s approval, a sovereign default remains very unlikely. The country saw a return in economic growth and job creation in 2023 and the first half of 2024, but its sustainability relies on the administration’s capacity to keep approving reforms and better manage fiscal policy.
