Central America’s next practical gain may come from harmonizing the rules and routines that shape government borrowing costs and how risk is assessed. Photo by John Angelillo/UPI | License Photo
Central American leaders constantly talk about integration: trade and customs reform, plus logistics and infrastructure. But the region’s next practical gain may come from something quieter: lowering the cost of capital by harmonizing the rules and routines that shape government borrowing costs and how markets assess regional risk.
In mid-February, the Secretariat of the Central American Monetary Council (SECMCA) convened the 32nd meeting of its Committee on Capital Markets and Financial Operations in San José, Costa Rica. The agenda covered public debt issuance standards, regional market development and money-market conditions.
This may sound technical. It is also strategic.
The hidden tax of fragmentation
Every country pays a “cost of capital” tax. It shows up in sovereign borrowing costs and mortgage rates. It also affects access to business credit and the fiscal room governments retain for public investment.
In a fragmented region, that tax rises. Issuance practices differ. Market infrastructure varies. Participation is uneven. Investors price in friction as well as fundamentals, and the premium becomes sticky over time.
Recent sovereign bond transactions across Central America illustrate the gap. Costa Rica issued U.S.-dollar bonds in 2024 with coupons in the 6-7% range on benchmark maturities. Honduras, by contrast, issued a 2034 U.S.-dollar bond in late 2024 with an 8.625% coupon, a meaningful premium that compounds into higher debt-service costs over the life of the instrument. Guatemala and Panama sit between these poles, partly because of fiscal differences and partly because markets vary in how legible they are to investors.
These gaps reflect real fiscal and governance differences. But they also reflect something more tractable: a friction premium driven by thin secondary-market liquidity and uneven issuance routines, compounded by inconsistent documentation. When investors cannot easily read a market, they charge for the uncertainty.
The result is familiar. Governments lean too heavily on shorter maturities. Local institutional investors face a thinner menu of reliable instruments. Global investors demand higher returns to compensate for unpredictability. Over time, that unpredictability becomes embedded in the price of money.
What coordination changes in practice
Regional coordination does not require a monetary union. It requires predictability.
SECMCA’s session put “public debt issuance standards” on the table. That phrase translates into practices investors reward: clearer issuance calendars and more consistent documentation and disclosure. Auction mechanics that reduce surprises can broaden participation. Done well, it builds a shared regional language for debt management: comparable reporting and routines that survive electoral cycles.
It also points to the less visible infrastructure that determines whether markets actually function: settlement reliability, custody arrangements and rules that support secondary-market liquidity rather than trap investors in instruments they cannot readily trade.
A useful benchmark is the Asian Bond Markets Initiative (ABMI), launched by ASEAN+3 economies (including China, Japan, and Korea) following the 1997-98 financial crisis. Facing fragmented national markets and heavy reliance on short-term foreign borrowing, those governments built a coordinated framework to standardize issuance and settlement and deepen local currency bond markets. Critically, the ABMI required no monetary union and no supranational regulator, only consistent platforms and predictable rules sustained over time to reduce cross-border friction. Over two decades, the direction was clear: deeper secondary markets and a broader investor base, with pricing that improved as fragmentation fell. Central America is not East Asia, but the structural logic is the same.
Money markets matter, too. When short-term markets are thin or segmented, central bank policy signals transmit unevenly into real borrowing conditions. Better-functioning regional money markets help stabilize financing and reduce the volatility that deters longer-term investor participation.
None of this produces applause lines. It produces lower risk premia.
Why U.S. and EU investors should care
Investors do not only price countries. They price processes.
When issuance routines become more legible, the investable universe widens. The buyer base grows beyond a small circle of specialists. Over time, that dynamic helps compress borrowing costs and extend maturities, both of which matter for the infrastructure-heavy, longer-tenor projects that nearshoring investment demands.
There is a geopolitical dimension, though it need not dominate the analysis. The United States and China are competing for influence across Latin America, and access to capital is part of that competition. Regions that can mobilize domestic savings and attract external finance on transparent terms gain strategic maneuvering room. For Washington and Brussels, deeper local markets reduce the temptation to treat every project as a one-off diplomatic negotiation. For governments in the region, they reduce dependency on any single external lender. Financial plumbing becomes strategic when the global financing environment tightens.
The credibility test
A committee meeting will not solve fiscal pressures or erase political risk. Markets will continue to price governance and legal certainty, including credible policy continuity.
But coordination can narrow the gap between where these markets are and where they could be. The baseline today includes thin secondary markets and shorter average maturities driven by investor caution; spreads often reflect illiquidity as much as credit risk. Success would show up in behavior: more consistent auction demand and deeper secondary trading, along with a yield curve investors can trust. It would also mean fewer unforced errors and fewer abrupt rule changes that force investors to price political noise rather than credit fundamentals. Clearer issuance signals would help investors focus on credit fundamentals.
SECMCA describes this committee as a technical forum intended to strengthen regional coordination and contribute to macro-financial stability. If the region treats that mission as measurable rather than rhetorical, the payoff is tangible: cheaper capital and longer tenors, supported by a broader investor base.
Integration that citizens can feel
Central Americans feel the cost of capital even when they never use the phrase. It is embedded in credit access and mortgage affordability, and it influences job creation and business formation. A government paying a hundred-plus basis points because of illiquidity and uncertainty is a government with measurably less to spend on schools and roads, or one that borrows shorter and rolls over debt more frequently, creating precisely the fragility that deters long-term investment.
Trade and infrastructure will remain central to the region’s development agenda. But the next leap may come from something less visible and more decisive: making financing cheaper, longer-term and more reliable for every government in the isthmus.
In today’s environment, that is not just economics. It is leverage.
César Addario Soljancic is an economist specializing in public finance, with decades of experience advising governments and institutions across Latin America and the Caribbean. Over his career, he has led 69 capital-market issuances across 13 countries, totaling nearly $49 billion. The views expressed are solely those of the author.
