FACTBOX-Key political risks to watch in Thailand

SINGAPORE, March 1 (Reuters) - Plans for mass anti-government protests, tensions in the corridors of power, divisions in the army and the suspension of up to $12 billion of industrial projects continue to cloud Thailand's political outlook.

Thai 5-year sovereign credit default swaps THGV5YUSAC=R are trading at a spread of 117 basis points, compared to a weighted average of 140 for the Thomson Reuters Emerging Asia Index. This implies lower default risk than regional peers like the Philippines, with a spread of 194 and Indonesia at 182, but higher than South Korea at 107 and Malaysia at 104.

Following is a summary of key Thailand risks to watch:

* POLITICAL INSTABILITY

Thailand remains bitterly polarised. A colour-coded political conflict, between royalists, urban elites and the military, who wear the king's traditional colour of yellow at protests, and the mainly rural supporters of former premier Thaksin Shinawatra, who wear red, shows no sign of ending. [ID:nSGE5BH0EH]

Since Thaksin was ousted in a 2006 coup, Thailand has gone through six heads of government and faced several disruptive showdowns, including a siege of Bangkok's airports in 2008 and the forced cancellation of an Asian summit in 2009. In 2002, the World Bank's World Governance Indicators rated Thai political stability at 59.1 out of 100. By 2008, it had dived to 12.9.

The central bank says Thailand's economy can grow 5 percent this year, although economists say any deepening of the political crisis could hit growth due to its impact on the confidence of both consumers and investors, and on economic policymaking. But much of the risk is priced in -- shares are trading at just 10.6 times forecast 2011 earnings according to Thomson Reuters data, second cheapest in Asia after Pakistan. [ID:nSGE61P02B]

What to watch:

-- Stability of Prime Minister Abhisit Vejjajiva's coalition. The army-backed six-party alliance remains shaky, exacerbated by Abhisit's Democrats' refusal to support coalition partners' constitution amendment plans. The government does not have to call an election until late 2011, if it can hold together. Despite strains in what has been dubbed the "coalition of the unwilling", it is expected to stick together as none of the parties feel strong enough to contest another election yet.

-- A planned mid-March protest lasting over a week by "red shirts" allied with Thaksin. Although the last six rallies have been peaceful, the reds say they will bring a million people to Bangkok on March 14 to topple the government.

-- A no-confidence motion by the pro-Thaksin Puea Thai party. While most analysts expect the government to survive the televised grilling, disgruntled coalition partners could turn on Abhisit if they are not offered concessions.

-- Early parliamentary dissolution. If the coalition does fragment and elections are held, the most likely result would be a victory for Thaksin's allies in the Puea Thai party. The "yellow shirts" movement would then seek again to unseat the government. Worse, the military might decide to intervene once again to stop Thaksin's allies taking power. [ID:nSGE61004V]

* INDUSTRIAL ESTATE FREEZE

A surprise decision last September by a Thai court to suspend 64 projects -- initially 76 -- at the Mat Ta Phut industrial estate, the world's eighth-biggest petrochemicals hub, has raised concerns about bureaucratic unpredictability and the competence of a government fighting fires on multiple fronts.

The freeze has affected projects worth an estimated $9 billion to $12 billion, with companies like energy giant PTT PTT.BK and Siam Cement SCC.BK, Thailand's largest industrial conglomerate, among those affected by an injunction ordered due to their failure to carry out environmental and health impact assessments as required by the constitution. [ID:nSGE617077]

Abhisit has announced proposals he hopes can get the stalled projects restarted in six to nine months, but many analysts say this is unrealistic and expect the saga to drag on much longer.

What to watch:

-- The Central Administrative Court is considering numerous appeals to get the projects restarted and on Feb. 24 allowed seven companies to continue construction of plants, though they were still barred from operating. Further lifting of injunctions on a case-by-case basis could be indicative of progress or some kind of compromise being made. [ID:nSGE61N0FA]

-- Opposition from affected parties. Public participation in approving new projects is required under the constitution and a swift resolution could be complicated by opposition from environmentalists and locals concerned about pollution.

-- The government is scrambling to set up panels, committees and boards to try to get the projects restarted. Progress and agreement on health and environmental legislation and criteria for selecting representatives would indicate movement towards compliance with regulations and resumption of operations.

* THE KING'S HEALTH

The 82-year-old King Bhumibol Adulyadej has been in hospital since Sept. 19. Recent pictures appear to show he is in better health, but 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 widely respected in Thailand so his political influence is accepted by most Thais. But his son and presumed heir, Crown Prince Maha Vajiralongkorn, does not yet command the same popular support as his father. Many Thais and political analysts fear if the crown passes to Vajiralongkorn while political divisions remain unresolved, opposing factions will intensify their struggle, with highly destabilising consequences. [ID:nSP507497]

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 THB= and raise the risk of a sovereign downgrade.

-- Extent to which privy council members remain a focus of protests. Protests against the royal family are illegal, but the "red shirts" have targeted senior royal advisers. If privy councillors remain a focus for protests, this is a sign the succession may be less smooth and orderly than many hope.

* THREAT OF A COUP

Thailand's military and police have a congenital inability to keep out of politics -- the country has had 18 actual or attempted coups in 77 years of on-off democracy.

What to watch:

-- Divisions in the military. The army backs the government, having played a big role in putting together the coalition. But cracks are starting to appear in the military along similar yellow-red fault lines as society. A widening of these divisions heightens the prospect of a coup, or more dangerously, a violent conflict between rival military factions. [ID:nSGE60E081]

-- Level of unrest and instability. A coup becomes much more likely if Thailand sees another bout of mass unrest on the streets. In these circumstances, a successful coup could boost markets in the short term, but the long-term impact on Thailand's attractiveness for foreign investors would be negative. (Editing by Andrew Marshall, Singapore Asia Desk; +65 6775 8713))