Russia 1998

About Russia 1998

Russia defaulted on 40 billion in domestic debt on August 17, 1998. The Russian government had financed budget deficits by issuing short term ruble bonds called GKOs. Interest rates reached 150 percent as investors demanded compensation for risk. The Asian financial crisis and falling oil prices reduced confidence. The ruble was devalued from 6 to 21 per dollar within weeks. The government declared a 90 day moratorium on foreign debt payments. Major banks collapsed. The LTCM hedge fund, which had leveraged positions in Russian bonds, collapsed, requiring a 3.6 billion private bailout coordinated by the Federal Reserve. The Russian default demonstrated that sovereign default was possible even in a major nuclear power. Russia recovered quickly due to rising oil prices in the 2000s.