Russia’s 1998 default and ruble devaluation triggered a major global hedge-fund crisis.
On 17 August 1998, Russia devalued the ruble, restructured domestic debt, and declared a moratorium on some foreign debt payments. The announcement followed years of fiscal strain, falling commodity revenues, and pressure on Russia’s exchange-rate system.
The shock spread through international markets. Investors who had treated Russian debt and other emerging-market assets as relatively attractive reassessed risk across many countries. Long-Term Capital Management, a highly leveraged U.S. hedge fund, suffered severe losses from market movements and was later recapitalized by a consortium of banks arranged by the Federal Reserve Bank of New York.
Russia’s crisis is distinct from the 1997 Asian financial crisis, although the two episodes were linked by global capital flows and investor risk aversion. The event showed how leverage could turn a regional default into a wider financial threat.