Index trend
Previous Quarterly Editions
Expropriation Risk: 54 54 54 54 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:35 36 36 36 ►Exchange Transfer and Trade Sanction Risk: 54 55 54 55 ►Sovereign Default Risk:55 55 56 56 ►
Overall Risk Temperature: 53 (Medium) TREND ►
Special topic: Relationship with the 'global rules-based order'
Political leaders’ perceptions of the benefits of the global rules-based order for Brazil are divided across the ideological spectrum. On the left, politicians emphasize the advantages of international regimes, particularly in protecting and promoting human rights. They support rulemaking processes based on consensus or one-country-one-vote majorities, such as those adopted by the United Nations (U.N.) General Assembly and the World Trade Organization (WTO). They are, however, critical of processes based on differentiation among countries, including those of the U.N. Security Council and the International Monetary Fund. On the right, politicians are wary of international human rights regimes, viewing them as influenced by the left to target traditional family and religious values. Nonetheless, they tend to have a more positive view of international economic organizations, particularly their promotion of free enterprise and free trade.
Despite these differing perceptions, the political establishment has been consistent over time in pursuing a non-aligned foreign policy. There is a shared belief that Brazil, as a regional power, has both the means and the right to aspire to great power status. This aspiration entails advocating for changes in the existing order toward a multipolar international system. Such changes are expected to be pursued legally and diplomatically rather than through power politics or warfare; however, increasing geopolitical competition between the U.S., China and Russia has been eroding this Brazilian consensus on foreign policy. Left-leaning administrations tend to avoid criticizing or even supporting Chinese and Russian efforts to undermine the liberal international order, while right-leaning ones lean toward a closer alliance with the U.S.
These diverging paths have become evident in the past five years. The right-leaning Bolsonaro administration in Brazil secured non-NATO ally status with the U.S. In contrast, the left-leaning Lula administration supported China's proposal to expand BRICS membership (an intergovernmental organization consisting of Brazil, Russia, India, China, South Africa, Egypt, Iran and the United Arab Emirates) to include several non-democratic, Chinese-aligned countries; however, despite these differences, a few goals for reforming the global rules-based order remain consistent across all Brazilian administrations. Particularly noteworthy is the goal to expand the number of permanent members of the U.N. Security Council with veto power. Brazil, Germany, India and Japan are among the major powers advocating for this reform.
Domestic politics complicate Brazil’s position. The private sector leans toward the right, supporting a closer alliance with the U.S.; however, Brazilian producers and exporters of food, fuel and mining commodities rely heavily on China, their largest market. On the other hand, civil society organizations and academia tend to align more with the left and often express anti-U.S. sentiments. They were vocal in their criticism of Israel's response to the October 7 Hamas attack but remained silent on Russia's war against Ukraine.
The erosion of the global rules-based order is already harming Brazilian interests. A prominent example is the paralysis of the WTO Appellate Body since 2020. Brazil, a major user of the dispute settlement mechanism, has seen reduced success in removing trade barriers imposed by other countries on its exports; however, Brazil has also benefitted from the side effects of the war in Ukraine. Its national oil company had windfall gains with the sharp rise in oil prices; its agricultural exporters gained market share at the expense of Ukraine, and the country has been importing Russian diesel at a discounted price due to sanctions. These mixed signals have not yet produced any visible long-term change in Brazil’s approach to the global rules-based order.
TREND ►
The risk of expropriation is very low due to a robust legal framework and Brazil’s commitment to an open investment policy. The constitution does not discriminate between Brazilian and foreign firms. In practice, it means that any foreign company that has a tax ID in Brazil is considered a Brazilian company, having the same rights and obligations; however, contract enforcement is an issue due to time-consuming and costly justice proceedings. In late 2023, Congress approved a new legal framework for loan guarantees that is expected to improve contract enforcement.
Former President Jair Bolsonaro sometimes threatened democracy with support from some members of the armed forces. A pro-Bolsonaro mob invaded three government buildings on January 8, 2023, in the capital, including the presidential palace, the high court and the senate. Apart from these, there have been few significant episodes of political violence in Brazil.
President Lula da Silva’s administration is negotiating measures with Congress to better shield the political system from 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 obey the constitution, and there is no signal of a threat from the military leadership, even though it is now clear that a few of its members were involved in a 2022 planned coup by Bolsonaro and his allies.
Brazil's terrorism risk is low; it is ranked 49 out of 89 in the 2024 Global Terrorism Index. Nonetheless, Brazil has improved its legal framework to criminalize terrorism and terrorist financing and to identify and freeze terrorist assets. Brazil also has extensive counterterrorism cooperation with other countries.
Organized crime is a major source of insecurity and the main public safety concern. Brazil’s three largest criminal groups — the First Capital Command (PCC), Red Command (CV) and 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 for cocaine distribution to Europe. In addition, local-level paramilitary groups are linked to criminal organizations, especially in Rio de Janeiro.
Recent trends show organized crime is growing in Brazil's North and Northeast regions. Paramilitary groups from Rio de Janeiro are spreading into other Brazilian states.
Land property-related crimes are an important source of insecurity, particularly in the countryside and in states in the agricultural frontier in the North and Midwest regions.
Brazil does not face any multilateral or unilateral sanctions or state-sponsored boycotts. The risk of sanctions, particularly on trade, related to the country’s dedication to preserving the Amazon biome has diminished since the election of a pro-environment administration in 2022.
Brazil eliminated its government deficit (combined federal, state and local) in 2021 after eight consecutive years of deficits; however, this was mainly due to increased tax revenues at the state and local levels, driven by COVID-19 and high inflation. While the government surplus was maintained in 2022, the fiscal policy deterioration resulted in a substantial government deficit in 2023.
To address last year's projected deficit, the Lula administration adopted a new fiscal framework. In addition to that, the central bank initiated a series of benchmark interest rate reductions, consisting of six consecutive 50-basis-point cuts.
Although the fiscal policy scenario is still unclear (even after the approval of the new fiscal framework), a sovereign default is very unlikely. The country saw a return in economic growth and job creation in 2023, but its sustainability relies on the administration’s ability to keep approving reforms and managing fiscal policy more effectively.
