This paper examines how events that change expectations about future international crisis lending modify the relationship between country spreads and fundamentals. If moral hazard is present, such events should affect the level of spreads, the sensitivity with which spreads reßect fundamentals, and their cross-country dispersion. When applied to the Russian crisis of 1998, these tests Þnd strong evidence consistent with the existence of moral hazard. However, this evidence is subject to a

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... ental interpretational caveat: the same Þndings could also be attributed to the perception that international crisis lending reduces the true risk of Þnancial crises in emerging markets. * We would like to thank Eduardo Borensztein and Olivier Jeanne for useful discussions and suggestions, and Manzoor Gill for help in compiling the data set. All the errors are ours. The views expressed in this paper are those of the authors and do not necessarily reßect those of the IMF.