Feb. 19 (UPI) -- Part 6 of a series examining structural barriers to growth and competitiveness in Latin America.
In previous installments of this series, we examined how inflation functions as a hidden tax that makes money more expensive, and we broke down the components of equity, debt and the weighted average cost of capital (WACC).
We now turn to a decisive factor for international investors, including those in the United States, when evaluating opportunities across Latin America: political risk.
Expropriations, abrupt regulatory shifts, weak institutions and policy reversals do not merely create uncertainty. They directly increase a country's risk premium. That premium feeds into the cost of capital, raising the minimum return investors require before committing funds. When that threshold rises too high, capital flows slow and in some cases stop altogether.
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