Jan. 29 (UPI) -- Part 3 of a 12-part series examining structural barriers to growth and competitiveness in Latin America.
Productivity and innovation do not alone determine economic performance in Latin America. The price governments and companies pay to borrow matters just as much. That price -- the cost of debt -- has become one of the region's most powerful structural constraints.
In emerging markets, borrowing costs reflect more than global interest rates. They incorporate country risk and inflation expectations, along with overall credit strength. When these factors weaken, financing becomes more expensive and investment activity slows, limiting growth. Understanding how inflation and credit ratings influence debt costs is therefore central to assessing Latin America's economic outlook.
Debt costs are typically composed of three elements: the global risk-free rate (usually the 10-year U.S. Treasury yield, around 4%-4.5% in 2026), the country risk spread measured through EMBI or CDS indicators, and the premium tied to sovereign and corporate credit ratings from agencies such as Moody's, S&P and Fitch.
In a global environment still marked by elevated interest rates and geopolitical volatility, Latin America faces average sovereign borrowing costs between 8% and 12%. Persistent inflation and high public debt remain the main drivers. In several countries, interest payments on dollar-denominated sovereign bonds now exceed 10%, according to the World Bank and the Inter-American Development Bank.
