Capital Flight//Traade Balance//FPI(Foreign Portofolio Invesment)//FDI(Foreign Direct Invesment//

1. What causes Capital Flight to happen?

Before discussing Capital Flight, what is actually meant by Capital Flight. So far there has been no theory that has been agreed upon by experts, but from all the theories and definitions of Capital Flight that have been conveyed by experts, the point is the transfer of large amounts of money belonging to a country which is entered into other countries for the purpose of investment, seeking greater and more profitable profits for the country's economy and avoiding losses caused by irresponsible parties. In addition, another factor that can affect a country's capital flight is the deterioration of the economy and politics in the country of origin. The following are some definitions of Capital Flight from experts:

1. Cuddington (1986) defines capital flight as a short-term outflow of capital, both recorded and unrecorded, which is speculative by the non-bank sector.
2. Beja (2007) defines capital flight as an outflow of private sector capital from developing countries with scarce foreign exchange reserves. The outflow of capital follows a revolving mode in foreign debt which has turned into a capital flight due to increased debt services and increased risk of default.
3. Kuncoro (2016: 411) in general, is defined as capital flows abroad in the short term, and is usually used for speculative purposes. It can be in the form of hot money (money from corruption or to avoid taxes) transferred to banks in developed countries on behalf of individuals, it can also be in the form of a transfer of profits from domestic entrepreneurs to foreign entrepreneurs in a joint venture, or indeed money going back and forth to the market. money and international capital to seek higher returns.

• Factors and Causes of Flight Capital is the domestic interest rate below the world interest rate. As a result, many people move their wealth from within the country to abroad. This resulted in a decrease in the rupiah exchange rate, however this incident made the prices of domestic goods cheaper and an increase in exports resulted in an increase in the value of national GDP.

> Trade Balence
The Treade Balance is the difference between the amount and total exports of products and services from a country with the total products and services imported into a country. Furthermore, if the calculation of Tread Balance or what is commonly called the BoT (Balance of Trade) shows a small or negative number (Trade Deficit) or shows the number of exports of a country that is greater than the value of imports (Excess Trade). Here are some factors that can affect BoT:

1. Production costs that affect a country's export power. other than production costs, land, capital, taxes, subsidies, land or places that support the means of production.
2. The cost of availability of raw materials as the main material before producing goods / products for export.
3. The movement of the currency exchange rate of the exporting country and the country of export destination.
4. Tax policies and restrictions on buying and selling in the multitateral, bilateral and unilateral scope.
5. Environmental factors and field conditions of travel and transportation are also important factors that must be prepared to facilitate the distribution of raw or manufactured goods.
6. State political conditions also affect the amount of goods to be exported, because the more stable domestic political conditions, the greater the amount of foreign investment that enters and increases business capital.

> International trade war
A trade war is an economic conflict that occurs when a country imposes or increases tariffs or other trade barriers in response to trade barriers set by other parties. Trade wars are caused by protectionist policies, which are usually enforced by a country to protect local producers, to return jobs from abroad, or the perception that trade practices in other countries are unfair and need to be balanced with tariffs.
The value of export product prices in a country has an effect on Capital Flight, which can be seen from the BoT, besides being able to benefit the exporting country, it can also be an evaluation to increase profits. In this case there is a Value Addid that can take advantage of the international trade situation.

> Exchange rates
This is another factor causing Capital Flight is exchange rates. Exchange rate can be interpreted as an amount of money from a certain currency which can be exchanged with the currencies of other countries. Currency exchange movements will have an impact on the value of commodities and assets because exchange rates can affect the amount of cash inflows received from exports or from subsidiaries, and affect the amount of cash outflows used to pay for imports.

> Interest rates
Interest rates in developing countries are unrealistic and are often accompanied by volatile currency rates to prevent capital flights abroad. Besides being able to affect prices and production costs, interest rates also have a negative impact on investors who will develop them.

> Inflation
Inflation is a process of searching for prices in general and continuously (continuously) related to the market which can be caused by various factors, among others, increased public consumption, excess liquidity in a market that is consumed or even speculation, to include due to the non-smooth distribution of goods. This factor causes the distrust of investors to invest abroad or domestically so that it will increase Capital Flight


2. Do you think it is better for the government to have more FDI (Foreign Direct Investment) than FPI (Foreign Portfolio Investment)?

> FDI (Foreign Direct Investment)
FDI is an important feature of an increasingly globalized economic system. This stems from one country investing in the long term in a company in another country and the company in the home country can control the company that has just invested. condition investors must buy at least 10% of the company's shares.

The condition of FDI in Indonesia has been regulated in the Foreign Investment Law (UU No. I / 19670 and must obtain permission from the competent institution. This law is also one of the ways Indonesia attracts foreign investors / investment to build the national economy. However, multinational companies are want to use natural resources to dominate the market and reduce production costs by employing cheap laborers from developing countries.

The benefit that can be obtained from FDI is that it can increase PDB by flowing money from abroad which will increase taxes. Products that are exported can improve the trade balance and reduce unemployment because producing products requires employees.

> FPI (Foreign Portfolio Investment)
The Foreign Portfolio Investment is one of the most common ways a country invests abroad. For destination countries, both are important sources of funding for most economies. This Foreign Portfolio Investment refers to short-term investment in financial instruments such as stocks in other countries, this investment is not like Foreign Direct Investment because it does not give investors control and direct ownership of the company's assets. However, these portfolios provide a fairly simple way to diversify their portfolios internationally. Stronger exchange rates also benefit investors and access to international credit is an important source of funding for a country with an open economy, apart from foreign direct investment. Portfolio investing involves buying securities in the capital market to get a more profitable return. Moreover, the difference between portfolio investment and direct investment is

1. FPI does not actively exercise control over investment and is involved in the management of the companies they invest in. Meanwhile, foreign direct investment from investors can control the companies that have just invested.
2. FDI Invests its capital in the long term, whereas FPI is short-term oriented.
3. Portfolio investment tends to be more liquid and less risky than direct investment as a result of which it is easy to buy and sell

From the conclusion above, in my opinion, short-term investment has a greater negative risk because it only benefits from previous profits. Therefore, long-term investment such as FDI (Foreign Direct Investment) can provide a more profitable potential for a country's economy. In addition, new technology and innovation will increasingly develop and people from countries that receive FDI often get training and work experience in new fields, of course, this is very useful as an utilization of human resources. so that this advantage can make the valuation increase and beat the inflation rate. Maintaining long-term investment is more profitable. The conclusion is I will agree if the government takes steps or decisions to make long-term investments such as FDI (Foreign Direct Investment).