April 2 (UPI) -- After tracing the cost of capital across Latin America in this series, one conclusion stands out: the region's high financing costs are not a fixed condition. They arise from policy choices and persistent structural weaknesses, both of which can be improved over time.
That matters because the cost of capital remains one of the clearest obstacles to development in Latin America, even if it often receives less public attention than inflation, trade or debt. In emerging markets across the region, the weighted average cost of capital, or WACC, often runs 2 to 5 percentage points above levels seen in developed economies. In practice, that frequently means financing costs of 9% to 15% or more, depending on the country and the sector.
The reasons are familiar. Investors worry about sovereign risk and exchange-rate volatility. In some countries, they also price in persistent inflation and doubts about institutional reliability. The result is straightforward: projects that would be viable in more predictable markets become too expensive to finance in Latin America.
A high WACC does more than raise borrowing costs. It reduces the net present value of projects and raises required returns, discouraging productive investment. Companies that might approve projects yielding 12% or 13% in other environments often reject them in the region because the hurdle rate is simply too high. That leaves less room for expansion and slows growth.
