The current situation in Brazil is something totally peculiar and unique in the history of the country. The country is currently facing a severe economic crisis with a GDP retraction of 3.6% in 2016, the worst recession in the country´s history. However, the real peculiarity is with the unprecedented political crisis that Brazil finds itself in. Such a situation generates a variety of risks; the critical one in my point of view is the inability to address the structural reforms needed to rebuild the Brazilian economy and increase its attractiveness to direct foreign investment flows.

The issues facing Brazil from a political standpoint include the impeachment of the former president Dilma Rousseff, the credit rating downgrade issued by Moody´s, Fitch and Standard & Poor´s and the Lava Jato operation that is facing the rooted corruption within the public and private sector recovering R$11,5 billions ($3,6 bi). More than 200 indictments have hit top executives of the biggest companies in Brazil and high-level politicians, especially Lula, the former president before Dilma which has created even more instability among the ruling elite.

Now, the new President Michel Temer, Dilma´s former VP, is being involved in possible bribery and other corrupt practices. Everything began when it was released a secret recording of the Joesley brothers, who run the country’s biggest meat-packing firm JBS, with him. The record shows Michel Temer discussing hush money for a jailed associate with them.

Political experts as well financial market specialists are already preparing for a possible scenario whereby Michel Temer fails to fulfil his full term to 2018. The concern is that this instability is leading to much needed fiscal reforms being delayed and foreign investment continuing to dry up.

Longer term benefits are however also being felt; the old and rooted political class which has so heavily dominated Brazil’s political establishment are seeing their grip on power loosen. A few years ago, some of the more than 200 politicians and executives that are now facing jail were supposed to be untouchable. Brazil are now calling for a new and invigorated leadership in the country that could bring a different perspective to the country and a new, hopeful trajectory towards prosperity.

The optimism does need tempering however as the damage done in the last 2 years will require at least 10 years to recover and the scenario today is still unstable.

From an economic perspective, the country is experiencing something of a rebirth in 2017 due to its highly qualified economic team led by the former president of Banco Central, Henrique Meirelles. Although, the main issue remains the political crisis, small economic victories are being won.

The heightened risk has resulted in many companies starting to become aware of the huge importance of an effective Risk and Control Governance, raising the standard levels of Compliance, Internal Controls and Risk Management along the whole company and counterparties that are related to the company business.

Rediscovering business confidence in a corruption-free and stable political environment will be the vital indicator when assessing when to invest in Brazil. The underlying fundamentals do exist to create a ‘New Brazil’ however businesses and investors need to keep a close eye on how political developments unfold and ensure that robust risk mitigating measures are in place.