Russia defaulted on domestic debt in 1998 during the crisis that sent global markets sharply lower. On August 17, 1998, the Russian government devalued the ruble, declared a moratorium on some foreign debt payments, and restructured domestic ruble-denominated debt.
Russia’s public finances were weakened by low tax collection, large budget deficits, and dependence on commodity revenues. The Asian financial crisis reduced investor appetite for emerging markets, while falling oil prices further damaged Russia’s income. Pressure on the ruble became difficult to sustain under the existing exchange-rate arrangement.
The default caused severe losses for investors and contributed to the collapse of the hedge fund Long-Term Capital Management. The U.S. Federal Reserve helped organize a private-sector rescue for LTCM, but it did not directly provide a government bailout. Russia’s crisis differed from the 1997 Asian crisis, although international investors often treated emerging markets as connected during the period.