The Russian stock-market crash and ruble devaluation triggered a major emerging-markets crisis in 1998.
Russia had financed large budget deficits with short-term government debt known as GKO bills. Falling commodity prices and weak tax collection made repayment increasingly difficult, while investors demanded higher returns and moved money abroad.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments and effectively restructured domestic debt. Russian shares collapsed, banks failed and confidence in other emerging markets deteriorated.
The shock reached global finance through hedge-fund losses and leveraged positions. Long-Term Capital Management required a private-sector rescue arranged with Federal Reserve assistance. The crisis demonstrated how currency, sovereign-debt and stock-market stress can reinforce one another.