1. What causes Capital Flight to happen?

Capital flight is a large-scale exodus of financial assets and capital from a nation due to events
such as political or economic instability, currency devaluation or the imposition of capital
controls. Capital flight may be legal, as is the case when foreign investors repatriate capital back
to their home country, or illegal, which occurs in economies with capital controls that restrict the
transfer of assets out of the country. Capital flight can impose a severe burden on poorer nations
since the lack of capital impedes economic growth and may lead to lower living standards.
Paradoxically, the most open economies are the least vulnerable to capital flight, since
transparency and openness improve investors’ confidence in the long-term prospects for such
economies.
2. Do you think it is better for the government to have more FDI (Foreign Direct Investment)
than FPI (Foreign Portfolio Investment)?
FDI involves long-term investments in factories and enterprises in a country, and can be
exceedingly difficult to liquidate at short notice. On the other hand, portfolio investments can be
liquidated and the proceeds repatriated in a matter of minutes, leading to this capital source often
being regarded as “hot money.”

sourced from the material “Inisiasi 2 – Capital Flight”