Russia’s 1998 default helped trigger a major global hedge-fund crisis.
On August 17, 1998, the Russian government devalued the ruble, restructured domestic debt, and announced a temporary moratorium on some foreign debt payments. The move followed years of fiscal pressure, weak commodity prices, political uncertainty, and the Asian financial crisis. Russian financial markets fell sharply, and the banking system came under severe strain.
The shock spread beyond Russia through investors holding emerging-market debt and other risky assets. The most famous secondary crisis involved Long-Term Capital Management, a highly leveraged U.S. hedge fund. In September 1998, the Federal Reserve Bank of New York helped organize a private-sector rescue because disorderly liquidation threatened wider financial instability.
Russia’s event is sometimes described simply as a currency crisis, but it combined currency devaluation, sovereign debt restructuring, and banking distress. It also differed from the 1997 Thai crisis, which began with pressure on the baht rather than a Russian sovereign default.