Central American leaders constantly talk about integration: trade and customs reform, as well as logistics and infrastructure. But the region’s next concrete step forward could come from something more subtle: reducing the cost of capital by harmonizing the rules and procedures that determine the costs of public borrowing and the way markets assess regional risk.

In previous installments of this series, we examined how inflation acts 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).

Let’s imagine a company that is considering a $500 million lithium project in northern Chile. The geology looks promising. Global demand for batteries is on the rise. The technology exists. However, the project may never come to fruition.

In a region where creativity and volatility often go hand in hand, the cost of capital reflects the price companies must pay to access the resources needed for their operations and expansion. It represents the return that investors and lenders demand as compensation for the risks involved in doing business in the region.