Russia’s 1998 sovereign default helped trigger a worldwide market crisis after the country devalued the ruble.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments and restructured domestic government debt. The measures followed falling oil prices, weak tax collection, political instability and pressure on the country’s reserves.
The shock damaged confidence in emerging markets and contributed to a flight from risky assets. It also exposed the fragility of highly leveraged financial institutions. Long-Term Capital Management, a major hedge fund, suffered severe losses as normally related prices moved in unexpected directions.
The default is sometimes confused with the 1997 Asian financial crisis, which preceded it and helped create a wider environment of investor caution. Russia’s episode was a separate sovereign and currency crisis, though the two events were closely connected through global capital markets.