Index trend
Previous Quarterly Editions
Expropriation Risk: 54 54 54 57 ▲Political Violence Risk:48 48 48 48 ►Terrorism Risk:36 36 36 36 ►Exchange Transfer and Trade Sanction Risk: 55 54 54 45 ▼Sovereign Default Risk:56 47 47 47 ►
Overall Risk Temperature: 49 (Medium -2) TREND ▼
Special topic: Political polarization
Since Brazil’s return to democracy in 1985, political polarization was present but mild, tempered by the country’s multiparty system. Affective polarization was clearer around presidential elections, as the left-leaning Workers’ Party (PT) and the right-leaning Brazilian Social Democracy Party (PSDB) established a 20-year de facto bipartisan system from 1994 to 2014. During this time, PT and PSDB supporters demonstrated substantial negative partisanship and partisan bias despite the fact that, when in power, these parties adopted overlapping policies.
This political reality began to unravel in 2013, with major anti-government and anti-establishment demonstrations followed by an impeachment process of PT-affiliated then-President Dilma Rousseff. This fueled anti-PT sentiment and gave rise to new political forces on the right around then-Federal Representative Jair Bolsonaro. Since then, anti-PT and anti-Bolsonarism sentiment have played a major role in Brazilian politics. Bolsonaro was elected president in 2018 by adopting an intransigent anti-PT discourse, while former president Luiz Inácio Lula da Silva returned to the presidency for a third term in 2022 by establishing an anti-Bolsonarism coalition.
Over time, the PT-Bolsonarism divide became a proxy for a larger left-right ideological polarization, observable in increased division over major policy issues such as fiscal and monetary policies, education, public safety and healthcare. There is also a religious dimension: The growth of evangelical churches and their rising political power and clashes with the Catholic Church have reinforced both affective and ideological polarization.
The impact of polarization over political stability is clear. The most radical Bolsonarists planned a coup after Bolsonaro’s defeat in his 2022 reelection bid and were involved in a January 2023 insurrection in Brasília. At the same time, anti-Bolsonarist sentiment, particularly among Supreme Court justices, has led to court decisions that are increasingly perceived as politically biased against Bolsonaro and his supporters and favorable to President Lula da Silva. Polarization has also hindered left-right cooperation against organized crime — a growing, urgent and challenging public policy issue.
There is no indication that political polarization will recede. As Brazil prepares for the 2026 presidential election, developments point to a continuation of divisive left-right politics. They include a potential reelection bid by da Silva and infighting among candidates on the right to gain the support of Bolsonaro, who will likely remain out of the race.
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The risk of traditional expropriation is very low due to a strong legal framework and Brazil’s commitment to an open investment policy, with national treatment of foreign investors guaranteed by the Constitution.
However, risk associated with the judiciary branch has increased. This includes contract enforcement (due to time-consuming and costly judicial enforcement proceedings), corruption (especially the sale of court decisions) and an activist Supreme Court making decisions that are increasingly seen as politicized.
The regulatory burden also remains an issue, although the risk of government-induced expropriation through regulation is very low. Key sectors are regulated by independent agencies with a clear congressional mandate.
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Overall, political violence in Brazil is rare, the exception being recent instances linked to Bolsonaro and his supporters: a wave of riots (when a pro-Bolsonaro mob invaded the palaces of the three branches of power in January 2023), the murder of a legislator, and threats of violence from Bolsonaro and his supporters.
There also seems to be a trend, yet to be clearly confirmed by official data, that homicides typically attributed to organized crime disputes over territory might actually include significant numbers of politically motivated crimes.
The armed forces continue to voice their obedience to the Constitution, with no signal of threat from the military leadership, even though some of its members were involved in a 2022 alleged coup plot by Bolsonaro and his allies.
Brazil continues to avoid being directly affected by terrorism. It has improved its legal framework during the past decade to criminalize terrorism and terrorist financing as well as to identify and freeze terrorist assets. It also has extensive counterterrorism cooperation with other countries, and its Federal Police recently arrested individuals suspected of having financed and supported Hezbollah.
However, organized crime is a major and growing source of insecurity and the main public safety concern. Brazil’s two largest criminal groups, the Capital First Command (PCC) and Red Command (CV), dominate drug trafficking directed to both the domestic and foreign markets. Brazil is not a major drug producer but has a large market and is a major transit route of cocaine distribution to Europe.
A recent trend is PCC’s reach into the Brazilian political system at various levels of government. The group seems to be actively financing campaigns of several candidates and developing relationships with others.
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Brazil faces no multilateral or unilateral sanctions of any kind nor state-sponsored boycotts. The threat of trade sanctions connected to the country’s commitment to protect the Amazon biome decreased with the election of a pro-environment administration in 2022.
However, the Trump administration in Washington has already imposed unilateral tariffs on Brazilian steel and aluminum exports and is planning to adopt additional tariffs in other sectors.
Brazil’s government returned to surplus in 2021 after eight consecutive years of deficit, but the deficit returned in 2023 and 2024, leading to an increase in public debt.
The Lula administration adopted a new fiscal framework, and the central bank reduced the benchmark interest rate by 350 basis points over seven meetings but stalled and reversed the process in view of growing concerns about future inflation and developments in the international economy.
A sovereign default remains very unlikely. The country saw a return to economic growth and job creation in 2023 and 2024.
