Uruguay’s cost of capital is not just a financial statistic. It reflects institutional choices over time: keeping inflation in check, maintaining political stability, honoring contracts and investing in modernization. File Photo by Raul Martinez/EPA
March 12 (UPI) — Part of a series on capital flows and political risk in Latin America
Every loan a bank makes, whether to a farmer, a small business or a family buying a home, starts with a basic question: What does it cost the bank to raise money? That cost influences the loan’s interest rate, the bank’s willingness to lend, and the amount of financing that reaches the real economy.
In finance, the standard measure is WACC, the weighted average cost of capital — the blended cost a bank pays for funding, combining relatively cheap sources (deposits and debt) with the higher returns expected by equity investors. Lower WACC leaves more room to lend at competitive rates; higher WACC usually means more expensive, scarcer credit.
Across Latin America, WACC varies widely, helping explain why credit is affordable in some countries and costly in others. Uruguay, with stable institutions and a long record of sound economic management, sits at the favorable end of that spectrum.
Why country risk matters for your loan rate
The foundation of any country’s borrowing costs is country risk: the extra return investors demand to compensate for the chance that things go wrong. Countries with credible governance and predictable rules pay less; those with a history of instability pay more.
According to data compiled by NYU professor Aswath Damodaran (updated January 2026), Uruguay’s country risk premium stands at 1.36%, consistent with its Baa1 investment-grade rating from Moody’s and among the lowest in Latin America. Some more conservative estimates, adjusting for historical volatility, place it slightly higher, around 1.5%. Either way, the number is notably low for the region. Market-based measures of sovereign risk in early 2026 also put Uruguay near the bottom of the Latin American range.
This matters because country risk filters into everything downstream: the return equity investors demand to put money into a bank, how cheaply a bank can borrow, and ultimately what rate it charges the farmer or small business owner at the end of the chain.
Uruguay’s state bank as a case study
Banco de la República Oriental del Uruguay (BROU) is the country’s state-owned bank and a leading institution in the system. It does not publish an official WACC figure, but the author’s calculations, using standard methodology and publicly available data