Renewed volatility in energy and commodity markets is again exposing a divide within Latin America.

Aug. 13 (UPI) -- Renewed volatility in energy and commodity markets is again exposing a divide within Latin America. Exporters may receive a temporary lift from higher prices, while import-dependent economies face greater pressure on inflation and public finances.

The International Monetary Fund projected regional growth of 2.4% for 2026 in its July update, little changed from the previous outlook. The modest figure underscores a deeper problem: Latin America remains caught in what the Economic Commission for Latin America and the Caribbean calls a trap of low growth capacity.

The region has faced this test before. The commodity super cycle that supported much of Latin America's expansion early in this century began to weaken around 2014 as China's growth slowed. Prices for oil, metals and agricultural exports fell. Government revenue declined in countries that had treated the boom as a lasting source of prosperity.

The downturn did more than reduce export earnings. It exposed economies that had postponed reforms while external demand remained strong. How several major countries responded still offers useful lessons.

Brazil: From expansion to deep recession

Brazil, the region's largest economy, was hit hard by the fall in commodity prices. Yet the external shock alone does not explain the depth of its recession. The government's New Economic Matrix relied heavily on fiscal stimulus and subsidized credit. Price controls also concealed inflationary pressure for a time.

As revenue weakened, the fiscal deficit widened and public debt rose. Inflation accelerated, forcing the central bank to raise interest rates sharply. Fiscal policy continued to stimulate demand while monetary policy tried to restrain it.

The contradiction deepened the downturn, already aggravated by political turmoil and the Petrobras corruption scandal.

Measures adopted after 2016 helped restore a degree of fiscal credibility. They also stabilized expectations. But Brazil's subsequent performance showed that adjustment alone does not produce vigorous development.

Stable public finances translated into growth only alongside productive investment and rules that businesses could trust.

Argentina and Venezuela: Different paths, a common warning

Argentina entered the downturn with high inflation and strict foreign-exchange controls. Its reserves were under pressure. A sharp devaluation in 2014 and the dispute with holdout creditors further restricted access to international capital.

The policy shift that began in late 2015 sought to lift currency controls and settle the debt dispute. Those steps improved access to financing, but the transition was poorly sequenced.

Rapid liberalization proceeded without a durable fiscal anchor, leaving the economy vulnerable when investor confidence weakened. Argentina's experience shows that coherent reform is not enough on its own; it also requires enough political durability to take effect.

Venezuela offers a more extreme warning. Its dependence on oil left it exposed when prices fell, although serious damage had already been done. Expropriations and price controls weakened production. Public institutions also deteriorated.

Rather than adapt to lower revenue, the government financed growing deficits through monetary expansion and imposed tighter controls. The result was hyperinflation, economic collapse and mass migration. The oil shock accelerated the crisis, but it did not create the underlying failures.

Other commodity exporters endured the same downturn with far less destruction. Chile and Peru benefited from more credible monetary institutions. Colombia and Uruguay also maintained greater continuity in economic management.

Their experiences do not prove that sound macroeconomic policy prevents hardship, but they show that it can keep an external shock from becoming a systemic collapse.

A trap a decade in the making

The crisis of 2014-2016 reflected a recurring regional pattern. Booms encourage governments to expand permanent spending on the strength of temporary revenue. When prices reverse, weak productivity and limited fiscal room become impossible to ignore.

ECLAC reported that average public debt in the region reached 52.3% of gross domestic product in 2025, up from 51.9% the year before. That burden limits governments' ability to respond to new shocks or to finance development. Macroeconomic stability, therefore, remains indispensable. It is a foundation, however, not a complete growth strategy.

Latin America also needs institutions capable of carrying out reforms across electoral cycles. The distinction that matters is whether public investment improves infrastructure and human capital or merely enlarges current spending.

Adjustments that ignore social consequences can lose legitimacy before they deliver results, while spending without discipline eventually destroys the resources needed to protect vulnerable citizens.

An old lesson for a new test

The changing global economy gives the region another opportunity. Mexico is well-positioned to benefit from supply chains moving closer to the United States, given its industrial base and preferential access to the U.S. and Canadian markets under the USMCA trade pact.

South America holds an outsized share of the raw materials the energy transition depends on: Argentina, Bolivia and Chile hold roughly 55% of the world's known lithium reserves, according to the U.S. Geological Survey, and Chile alone accounts for about a quarter of global copper supply. Brazil also has advantages in renewable energy and advanced manufacturing.

Natural resources do not automatically create prosperity. The distinction between a new opportunity and another short-lived boom will depend on how governments respond. Investment requires predictable rules.

Revenue from minerals or energy makes the clearest difference when it strengthens education and infrastructure and helps countries build reserves for the next downturn.

The commodity collapse a decade ago exposed weaknesses that had accumulated during years of abundance. Today's shifts in energy markets and supply chains offer a chance to address them.

Countries that treat a windfall as temporary can use it to raise long-term productive capacity. Those who spend it as though it will last are likely to return to the same growth trap.

César Addario Soljancic (www.cesaraddario.com) 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.