Key political risks to watch in Thailand-FACTBOX

Wednesday March 02, 2011 12:41:08 AM GMT
Reuters

THAILAND-RISKS/ (FACTBOX)

By Martin Petty

BANGKOK, March 1 (Reuters) - Thailand is bitterly polarised. Rivalries between several powerful camps remain deeply entrenched and there is no end in sight to a long-running political crisis.

Prime Minister Abhisit Vejjajiva says an election will probably take place around the middle of the year and although all sides welcome the polls, the stakes are high and there remains a strong possibility the results will be disputed.

Thailand's export-led economy is looking good, with growth of 7.8 percent last year, projected to expand 3-5 percent in 2011, although rising inflation remains a risk.

The baht currency has weakened following an 11 percent gain in 2010, which hurt exporters and sparked fears about imposition of capital controls.

Following is a summary of key Thailand risks to watch:

POLITICAL INSTABILITY

A colour-coded political conflict, broadly pitting "red" urban and rural poor against "yellow" royalists, urban elites ,bureaucrats and the military top brass, shows no sign of resolution.

Despite a government-backed move to reconcile the differences, divisions still run deep and a powerful "red shirt" protest movement believes justice is still elusive in Thailand and continues to accuse powerful elite aristocrats and the military of meddling in politics and the judiciary.

Thailand has had six heads of government and several disruptive showdowns since a bloodless coup ousted tycoon Thaksin Shinawatra as premier in 2006.

The country has since been plagued by bouts of paralysing, at times violent street protests, the occupation of government offices and international airports, bombings, arson attacks, assassination attempts and clashes between troops and demonstrators.

The yellow-shirted People's Alliance for Democracy (PAD) is holding a small but prolonged protest over the government's handling of a long-running border dispute with Cambodia, although analysts believe this is aimed more at political gains or attempts to rekindle its popularity.

The Thaksin-allied United Front for Democracy Against Dictatorship (UDD) or "red shirts" have held four peaceful rallies of more than 30,000 people this year, showing the movement is still a political force to be reckoned with. However, it appears to have softened its stance since the Feb. 22 release on bail of leaders charged with terrorism, and says there is no need to hold more protracted rallies. It says it will respect the election result -- whoever wins -- as long as the vote is fair.

The government has also softened its stance and is allowing the protests to take place, peacefully, but has invoked an Internal Security Act to keep them under control.

The latest upheaval began with mass red shirt rallies last March. The protesters then occupied a huge swathe of downtown Bangkok for 10 weeks until driven out by troops on May 19. The death toll from Thailand's worst political violence in recent history was 91 with more than 1,800 wounded.

The government also appears reluctant to press the military to reveal details about is operations during the red shirt rallies. A preliminary probe by Thailand's Department of Special Investigation, leaked to Reuters, shows troops may have played a bigger role in civilian deaths than the authorities have admitted.

What to watch:
-- Changes in rhetoric by protest groups. The red shirts say they will protest peacefully and see no reason for blockades. However, they are still demanding the release of scores of detained demonstrators and a transparent investigation into last year's violence. If their wishes are not granted, they may reverse their pledge.

Though small in number, the yellow-shirted PAD has shown it can mobilise big crowds. If it carries out veiled threats to occupy Prime Minister Abhisit Vejjajiva's offices, trouble could be ahead.

-- General election. A nationwide poll is unlikely to solve Thailand's troubles and may indeed intensify them. Puea Thai, a proxy party for Thaksin, could win, as his allies have every election in the past decade. This might be unacceptable to the "yellows" and many in the military, making heated protests, or even a coup, possible. If Abhisit prevails and the poll is tainted by cries of foul play, the UDD could stage more crippling and potentially violent rallies and the military would be expected to take a tough line.

-- Court cases. Prosecutors are pushing ahead with terrorism cases against UDD members and leaders while probes into the siege of Bangkok's airports by yellow shirts in 2008 are moving slowly. A public perception of unfair verdicts would underline one of the key grievances of the red shirts: Double standards in justice.

POLITICISATION OF THE MILITARY

Thailand's military and police are deeply entwined with politics. The country has had 18 actual or attempted military coups in 79 years of on-off democracy. The military's last spell in direct charge of Thailand, after the 2006 coup, is widely regarded as an economic disaster.

What to watch:
-- Divisions in the military. The top brass back the government, having played a big role in putting together the coalition. But there are some cracks along similar yellow-red fault lines as in society and if this were to intensify, a split in one of Thailand's most solid institutions would be bad news.

-- Rumours of coups. The military's powerful stake in politics means they come around often, and worry markets, though a putsch remains highly unlikely at present.

-- General Prayuth Chan-ocha. The royalist, pro-establishment army chief has a zero-tolerance approach to the red shirts, having been involved in many operations against them.

INFLATION

The Bank of Thailand sees inflation as the key risk factor for Thailand's economy in 2011.
The central bank has raised its key policy rate by a quarter point to 2.25 percent, its fourth increase since July 2010, to curb inflationary pressure and economists expect a similar rise when it meets on March 9. The central bank said it sees no reason not to continue tightening. Annual headline inflation was steady at 3.03 percent in January while core inflation eased to 1.32 percent from 1.4 percent in December.

What to watch:
-- Increases in food prices, domestic consumption. This would push inflation up. The government has fixed prices of about 30 food items and has ordered producers of major consumer products not to raise prices of goods. There are plans to extend government food subsidies until June. Any change in these policies could raise inflationary pressure.

THE KING'S HEALTH

The 83-year-old King Bhumibol Adulyadej has been in hospital since September 2009. The most recent footage appear to show him in better health and the prime minister met the king on Feb. 22 and said his health was "fine". However, his illness has focused attention on what will happen when his reign comes to an end.

A key issue in Thailand's political conflict is what role the monarchy and unelected elites should have in running the country. King Bhumibol is respected in Thailand and his political influence is accepted by most Thais, but leaked diplomatic cables show doubts among key royal advisers about the suitability of his son and heir, 58-year-old Crown Prince Maha Vajiralongkorn. Many Thais and political analysts fear if the crown passes to Vajiralongkorn while political divisions remain, opposing factions will intensify their struggle.

What to watch:
-- Statements from the palace on the king's health. A troubled succession could have a major negative impact on stocks and the baht and raise the risk of a sovereign downgrade.
-- Public criticism of privy council members. Protests against the royal family are illegal, but some have dared to criticise palace advisors, suggesting succession may be less smooth than many hope.
(Editing by Daniel Magnowski)