Russia’s 1998 default helped trigger the collapse of Long-Term Capital Management.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and restructured portions of its domestic debt. The announcement shocked international investors and caused a broad flight from risky assets.
Long-Term Capital Management was especially vulnerable because it had borrowed heavily to hold positions based on historical relationships between securities. The Russian crisis disrupted those relationships and pushed investors toward safer assets at the same time. Losses mounted rapidly, threatening the fund and its counterparties.
Russia’s crisis had domestic causes, including weak tax collection, falling commodity revenues, political instability, and pressure on the ruble. It also reflected wider emerging-market stress after the 1997 Asian financial crisis. The event demonstrates how a sovereign default can transmit shocks through banks, hedge funds, currencies, and global bond markets.