Russia’s 1998 sovereign default triggered a major global market shock and the rescue of Long-Term Capital Management.
On 17 August 1998, Russia devalued the ruble, restructured domestic ruble debt, and declared a temporary moratorium on some foreign debt payments. The announcement followed falling oil prices, fiscal problems, political uncertainty, and pressure on Russia’s currency and government bonds.
The shock spread through emerging markets and global credit markets. Long-Term Capital Management, a highly leveraged U.S. hedge fund with large positions in bonds and derivatives, suffered heavy losses. The Federal Reserve Bank of New York helped coordinate a private-sector recapitalization in September 1998, without a direct government bailout of the fund.
Russia’s crisis is often confused with the 1997 Asian financial crisis because the events were closely connected. It was a sovereign and currency crisis centered on Russia, not simply a stock-exchange crash.