GKOs became central to Russia’s 1998 sovereign default during the Russian financial crisis.
GKOs were short-term, ruble-denominated government securities. Russia relied heavily on issuing them to finance budget needs, but high interest costs and weak public finances made the arrangement increasingly fragile. Investors also faced pressure from the Asian financial crisis and falling commodity prices.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and announced a restructuring of domestic debt. The measures shocked global markets and damaged highly leveraged institutions, including the U.S. hedge fund Long-Term Capital Management.
GKOs are sometimes loosely described as Russian Treasury bills, but the acronym identifies a particular class of short-term government bonds. The crisis was not simply a stock-market event: currency devaluation, sovereign debt stress, banking weakness, and international contagion reinforced one another.