Translation:It is the best institution of the country.
Completely agree that it should be "in", though not sure the rule is quite that straightforward! "He was the best of them", for example or "it is the best feature of the country"! But definitely cannot be "of" here. I think it us more to do with institutions than superlatives.
But these are Portuguese lessons, not English. The phrase may not make sense when translated literally into English, but you must keep in mind that the phrases are in Portuguese. Thus, having been written in correct Portuguese grammar.
But the translations still have to make sense in English, or you are not learning the language. It certainly should not penalise an answer that is grammatically correct in English and prefer one that is not. There is no disagreement that you would use "de/do" in Portuguese and no disagreement that "de" usually means "of" when translated into English, but it does not always mean "of" and it is incorrect to translate it as "of" in this sentence. Following your argument would lead to translating a prominent word like "tem" as "has" in all contexts, whereas sometimes it means "there is".