Russia’s 1998 debt default helped trigger a global market sell-off and the collapse of Long-Term Capital Management. On August 17, 1998, Russia devalued the ruble, defaulted on domestic ruble-denominated debt, and imposed a moratorium on some foreign debt payments.
The crisis followed years of fiscal strain, weak tax collection, political instability, and dependence on short-term government borrowing. Falling commodity prices and the aftereffects of the Asian financial crisis made it harder for Russia to defend its currency and refinance obligations.
Investors who had assumed Russian securities would remain manageable rushed to reduce risk. The shock contributed to widening spreads and falling prices in many markets. Long-Term Capital Management, a highly leveraged U.S. hedge fund, suffered enormous losses on positions that were expected to converge in calmer conditions.
The Federal Reserve Bank of New York helped arrange a private-sector recapitalization of LTCM in September 1998. The rescue did not make the Russian default disappear, but it limited the risk of a disorderly failure spreading through major financial institutions.