The Russian default of 1998 triggered a sharp fall in global markets and helped precipitate the collapse of Long-Term Capital Management.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some domestic debt payments, and announced a restructuring of short-term government securities. The measures followed years of fiscal pressure, weak tax collection, political instability, and falling commodity revenues. Investors rapidly reassessed risks in emerging and developed markets alike.
Long-Term Capital Management, a highly leveraged American hedge fund, had made large bets on small differences between bond prices. The Russian shock caused those relationships to move dramatically instead of converging. Because many institutions were exposed to the fund, the Federal Reserve Bank of New York helped arrange a private-sector rescue in September 1998.
Russia’s event is often called a default crisis, although its measures also included a currency devaluation and a debt restructuring. The episode showed how leverage and interconnected markets could transmit a regional shock worldwide.