An Analysis of Russia’s 1998 Meltdown: Fundamentals and Market Signals

ON AUGUST 17, 1998, a little more than a month after an international
package of emergency financing and economic reforms was announced,
Russia was forced to devalue the ruble.1 Russia also declared its intention
to restructure all official domestic currency debt obligations falling due to
the end of 1999 and imposed a ninety-day moratorium on the repayment of
private external debt, to aid its commercial banks. The moratorium also
applied to these banks’ obligations from short positions on currency forward
contracts, as well as margin calls on repurchase operations (repos)
with foreign banks. Less than three weeks later, on September 2, the Central
Bank of Russia (CBR) floated the ruble. By September 9 the exchange
rate had reached 21 rubles to the dollar, more than three times the
6.29 rubles to the dollar that had prevailed on August 14.