Russia’s 1998 debt default and ruble devaluation caused a major global hedge-fund shock.
On August 17, 1998, the Russian government announced a restructuring of domestic ruble debt, a devaluation of the ruble, and a temporary moratorium on some private foreign debt payments. The announcement followed years of fiscal strain, weak tax collection, low commodity prices, and pressure from the wider Asian financial crisis.
The ruble lost much of its value, Russian banks faced severe distress, and investors sold assets in other emerging markets. The turmoil also exposed the vulnerability of Long-Term Capital Management, a highly leveraged U.S. hedge fund with large positions in global markets.
The Federal Reserve Bank of New York helped organize a private-sector rescue of the fund in September 1998. Russia’s crisis therefore became an important example of how sovereign debt problems, currency devaluation, leverage, and international capital flows can interact.