Russia’s government debt default helped trigger the global market turmoil of August 1998.
On August 17, 1998, Russia devalued the ruble, declared a moratorium on some foreign debt payments, and restructured domestic ruble debt. The announcement followed years of fiscal pressure, weak commodity prices, and political and economic instability.
The default shook international investors and contributed to a sharp flight from risky assets. Losses spread through emerging markets and highly leveraged financial institutions. The crisis also exposed the vulnerability of complex trading strategies that depended on stable relationships between asset prices.
The most famous subsequent failure was Long-Term Capital Management, a large hedge fund whose rescue was coordinated by the Federal Reserve Bank of New York in September 1998. The rescue was not a government bailout of the fund itself, but private-sector banks supplied the capital.