The Russian Financial Crisis (1998)

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The 1998 Russian financial crisis was a pivotal event that highlighted the risks of defaulting on government bonds and its impact on global financial stability. It began on August 17, 1998, when Russia devalued the ruble, defaulted on domestic debt, and imposed a moratorium on foreign debt payments. This crisis was precipitated by factors such as fiscal mismanagement, a fixed exchange rate, and the financial strain from the Chechen War. The Asian financial crisis and declining commodity prices further exacerbated Russia's economic woes. The crisis led to severe economic instability, including hyperinflation and a sharp decline in real wages, resulting in social unrest. It also had significant global implications, contributing to the collapse of the U.S. hedge fund Long-Term Capital Management. Despite these challenges, Russia's economy began to recover by 1999, partly due to the devaluation making exports more competitive and an increase in oil revenues. The crisis underscored the importance of fiscal discipline and flexible economic policies to mitigate similar financial crises in the future.