Russia’s 1998 government default triggered a global market shock and helped lead to the collapse of Long-Term Capital Management.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and restructured parts of its domestic debt. The move followed falling oil prices, weak government finances, political uncertainty, and pressure on Russia’s currency and bond markets.
Investors worldwide suddenly reassessed risk. Prices of many supposedly safer assets moved in unexpected ways, while liquidity dried up in several markets. Long-Term Capital Management, a highly leveraged hedge fund with major positions in bond and derivatives markets, suffered enormous losses. The Federal Reserve Bank of New York helped organize a private-sector rescue in September 1998, rather than using public funds to bail out the fund directly.
The Russian crisis is often remembered as a sovereign-debt and currency crisis as well as a market crash. It was not the same event as the 1997 Asian financial crisis, though the two episodes were connected through global investor sentiment and capital flows.