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.

Productivity and innovation are not the only factors that determine economic performance in Latin America. The price that governments and companies pay to borrow is just as important. That price—the cost of debt—has become one of the region’s most significant structural constraints.

The cost of capital—the rate of return that shareholders demand to compensate for the risk of investing in stocks—has become one of the most decisive factors in financial decision-making throughout Latin America

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.