Russia’s 1998 debt default and ruble devaluation intensified the global market shock.
Russia faced falling commodity revenues, weak tax collection, political instability, and heavy reliance on short-term government debt. On August 17, 1998, the government devalued the ruble, defaulted on some domestic debt, and imposed a moratorium on certain foreign debt payments. The announcement damaged confidence in Russian financial institutions and government securities.
The crisis also affected international markets because investors reassessed the risks of emerging-market debt. The highly leveraged hedge fund Long-Term Capital Management suffered enormous losses from positions tied to Russia and other markets. The Federal Reserve Bank of New York helped coordinate a private-sector recapitalization of the fund, although the U.S. government did not directly bail it out. Russia’s crisis is sometimes conflated with the 1997 Asian financial crisis, but it occurred the following year and had distinct causes linked to Russian public finance and commodity dependence.