Indonesia became a Casino Republic years ago. You will see a lot from the following tale!

[ A Sorta Fairy Tale of Casino Republic ]

The hot money trap is a blackhole. Once you fall into the trap, you won't be able to escape! You simply don't have the chance to build the escape velocity.

How they fall into the trap in the first place? Well, it's a bit complex. It's not obvious to average economists. When you have booming economy, there are many foreigners who want to share profits with you. If you allow many of them to gamble their money into your economy, you are providing them "Casino Mundial" with open arms. Their bets will be paid off well and profit will be shipped out of your country for good. Their profits will become your current account deficits. In addition, your central bank will be awash with foreign exchange. Unable to manage, your central bank will waste the money. With extra foreign capital, economy is overheating. Politicians see tax revenues increasing and go on spending spree. Exuberant consumers love to buy more imported goods. People see share prices rising endlessly. They pour all their money into stock markets. They even borrow to buy shares even at bloated prices. Foreigners see their investment return is even better. Remember that their profit is your current account deficit. They say thank you very much. They praise your economy with all sorta sweet words. You feel infatuated!

Suddenly foreigners see your current account deficit and foreign debt level is unsustainably high. They leave your Casino Mundial in a hurry. When foreigners exit your market, voila, you don't have enough foreign exchange to refund them! Now you have foreign exchange crisis! Your currency will tank. Your stock markets will tumble. Many people will lose lots of money. Now you are bust! In panic mode, your central bank will squander lots of foreign exchanges to prevent plunging currency and help foreigners' exit. What happened to all those money? Well, you spent some to import goods. Some were squandered by your central bank. The rest was taken out as profits by foreigners!

To fill this foreign exchange shortfalls, your government will have to offer even-more lavish casinos to foreign speculators to lure more hot money to flow in. They will make bigger profits, which means your blackhole will get even bigger! Your government's main business is to sell your bluechip companies to foreign investors to earn foreign exchanges. Soon your bluechip companies will be wholly or mostly owned by foreigners. Your economy will be mostly foreign-owned! Your people will be hard-working for foreign investors.

Whenever there is an external disturbance, foreigners will pull out money in a hurry, causing new foreign exchange crisis. It's a vicious cycle! Your financial market is foreigner's Casino Mundial where they can come and stampede as herds of sheep. Your economy will swing violently as herds of foreigners stampede. Preventing foreigners' stampede is your government's top national security priority. If you scare foreign investors with unsavory comments, you will be indicted! Your government treats foreign investors as angels. Frightening angels is a felony sin punishable with prison! Your democratic right is not applicable to the sin of frightening foreign investors.

Welcome to Casino Reich of Your Country! Your government says "Our economic fundamental is very strong. Please invest on our financial markets!"

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