Russia’s 1998 government debt default helped spark a major global market shock.
On August 17, 1998, the Russian government devalued the ruble, declared a moratorium on some foreign debt payments, and restructured domestic ruble debt. Russia faced falling oil and commodity revenues, weak tax collection, political instability, and the financial aftereffects of the 1997 Asian crisis.
The default damaged confidence in emerging markets and contributed to severe losses in Russian securities. Its international effects became especially clear when Long-Term Capital Management, a highly leveraged U.S. hedge fund, suffered heavy losses on positions involving Russia and other markets. A private-sector rescue followed in September 1998.
Russia’s default was not the sole cause of the global turbulence. It interacted with high leverage, crowded trades, and investor fear. The episode demonstrated how problems in one sovereign debt market could rapidly affect banks, hedge funds, and stock exchanges far beyond the country involved.