Russia defaulted on much of its domestic debt and sharply devalued the ruble during the 1998 Russian financial crisis.
The crisis followed years of weak tax collection, falling commodity revenues, political instability, and heavy reliance on short-term government securities. Russia had used treasury bills and bonds to finance its budget, but investors increasingly doubted that the borrowing could continue.
On 17 August 1998, the government and central bank announced a restructuring of ruble-denominated debt, a temporary moratorium on some foreign payments, and a widening of the ruble’s trading band. The currency soon lost much of its value, damaging banks and businesses with foreign-currency obligations.
The turmoil also affected international markets. Investors reduced exposure to emerging economies, and the hedge fund Long-Term Capital Management suffered severe losses. The Federal Reserve helped coordinate a private-sector rescue of LTCM, but it did not directly bail out Russia. The episode is therefore distinct from the 1997 Asian crisis, although the two were connected through global investor sentiment.