Russia’s 1998 default triggered a major stock-market shock and contributed to the collapse of Long-Term Capital Management.
On August 17, 1998, the Russian government devalued the ruble, restructured domestic debt, and announced a 90-day moratorium on some private foreign debt payments. Russia had been weakened by low commodity prices, political uncertainty, fiscal deficits, and the financial aftershocks of the 1997 Asian crisis.
The default damaged confidence in emerging markets and produced losses for banks and investors worldwide. Long-Term Capital Management, a highly leveraged U.S. hedge fund, held large positions involving Russian and other securities. As markets became less liquid and correlations changed, its losses threatened broader financial instability. The Federal Reserve Bank of New York helped arrange a private-sector rescue in September 1998.
The Russian episode was not the same as the 1997 Asian financial crisis. Russia’s crisis centered on sovereign debt, the ruble, and domestic fiscal weakness, though the events were linked through international investor sentiment.