Jan. 12 (UPI) -- Economic growth in Latin America is rarely constrained by a lack of ideas. Far more often, it is limited by the high price of the capital required to finance them.
In a region where creativity and volatility often go hand in hand, the cost of capital reflects the price companies must pay to access resources for operations and expansion. It represents the returns demanded by investors and lenders as compensation for the risks of doing business across the region.
This article begins a series examining why capital costs in Latin America remain structurally higher than elsewhere and what that means for growth and competitiveness.
Understanding capital costs requires grasping two key components. The cost of equity reflects what shareholders expect to earn, while the cost of debt captures the interest rates and risk spreads demanded by creditors. Together, these form the Weighted Average Cost of Capital, or WACC, the benchmark used to judge whether investment projects are economically viable.
The timing of this analysis is critical. With regional growth projected at between 2.3% and 2.5% in 2026, according to the U.N. Economic Commission for Latin America and the Caribbean, policymakers must confront the factors holding the region back. Political volatility and inflationary pressures persist, while reliance on commodity exports leaves many economies exposed to external shocks that raise financing costs and deter long-term investment.
