Thai "red shirts" not finished, need time to regroup

BANGKOK (Reuters) - Thai anti-government protesters have vowed to return to the streets after an army crackdown ended their nine-week protest, but with most of their leaders detained or in hiding, it could take months to revive their campaign.

Southeast Asia's second-biggest economy is still recovering from modern Thailand's worst political violence, which killed 88 people and wounded more than 1,800 as troops dispersed protesters from central Bangkok.

The occupation of an upscale commercial district by thousands of red-shirted protesters representing the rural and urban poor decimated the vital tourism industry, sent foreign investors fleeing Thailand's capital markets, and will shave a point or two from projected economic growth this year, the government says.

Calm has returned since troops forcibly dislodged protesters demanding immediate elections from their fortified encampment in ritzy central Bangkok on May 19, providing a window of opportunity to dip back into what had been one of Asia's hottest emerging markets. The window might not stay open for long.

Thailand remains fundamentally divided between what some analysts see as a peasant and proletariat movement largely backing ex-prime minister Thaksin Shinawatra and what they call an aristocratic "establishment elite" of royalists, military brass, bureaucrats and the educated middle class.

Thaksin, ousted in a 2006 coup, or his proxy parties have won every election in Thailand over the past decade, and would most likely win the next one, whenever that is.

But critics of the graft-convicted and self-exiled Thaksin say he and his allies are manipulating protesters' discontent over genuine grievances to engineer his comeback.

The government has suggested Thaksin may have been behind recent violence which authorities blamed on shadowy gunmen who were lurking behind unarmed protesters. He and protest leaders have denied any link with the gunmen.

The markets are no longer churning, but foreign investors remain on the sidelines awaiting political clarity. Five-year credit default swaps, a measure of sovereign risk, are trading at a spread of around 145 after going widening to 170 in May, their highest in a year, driven up by tremors in the euro zone as well as the political instability.

SHORT-TERM HORIZON

"Investors with a short-time horizon will see an opportunity in the current relative calm and move back into the market," said Bill Witherell, chief global economist with Cumberland Advisors.

"Investors that take a longer-term perspective ... would like to see some movement toward improving the underlying situation, some reason to believe that greater stability can be achieved."

"As long as alternative Asian markets offer greater stability and at least equal expected returns, Thailand is going to find it difficult to get international investors to return, particularly when global risk aversion is as high as it seems to be," he said.

Foreign investors sold a net $2.04 billion of stocks between April 10 -- the first major clash between troops and protesters -- and May 31. Compare that to a $1.8 billion wave of foreign buying from mid-February to April 9, a day before the gunbattle in the heart of old Bangkok that killed 25 people.

For now, the "red shirt" movement appears in disarray.

"Our grassroot activities will continue but it may take months before the organization as a whole recovers," said Pongsak Phusitsakul, a doctor who helped organize "red shirt" rallies.

"The movement is in no way dead. But I have no desire to rot in a military detention camp."

After top leaders surrendered and were taken into military detention, others, like Pongsak, went underground. A state of emergency is in place in Bangkok and elsewhere banning rallies.

Many activists have turned off their phones. Some have slipped away from home and shut down community radio stations that were instrumental in mobilizing support.

Karn Yuenyong, director of the independent Siam Intelligence Unit think tank, said financial sanctions on protest leaders, censorship of "red shirt" media and the beginning of the rice-planting season meant there would be no quick return to the streets.

With images of rioting, arson, and looting constantly replayed by the media, a stigma of being associated with the "red shirts" is compounding problems facing the movement.

"We have a lot of sympathizers, but there are people who want to distance themselves for now," said Sriwan Janhong, a disc jockey for a red-shirt radio in the northern city of Chiang Mai.

"They are scared they will be labeled uneducated and violent thugs so they give money and support but ask to stay anonymous. Some people think twice these days before identifying themselves as red shirt."

HARDER LINE

Some analysts say that since the recent violence, the government is more willing to take a hard line with the disparate movement of Thaksin supporters, democracy activists and leftists.

"The government is keeping the state of emergency. It has closed newspapers, radios, websites, and tracks the movement of regional leaders," said Charnvit Kasertsiri, a prominent political historian. "They are comfortable doing this in the name of fighting terrorism and republicanism."

Prime Minister Abhisit Vejjajiva had offered a November election in a failed bid to negotiate an end to the protest. But he is now in no rush to call polls.

Abhisit, who protesters say came to power illegitimately in an army-engineered parliamentary vote in December 2008, said on Saturday an election before the end of the year was unlikely but did not rule out a snap poll before his term ends in early 2012.

"Abhisit emerges strong in Bangkok -- he has the powerful middle class who yearn for some normalcy," said Charnvit. "The voice of criticism, no matter how legitimate, has been drowned out by a sense of relief and triumphalism."

But analysts say the rift in Thai society is wider than ever, raising the possibility of a radicalized, underground movement.

"There will be rumblings up-country. Some may resort to taking up arms, conducting an insurgency," said Thitinan Pongsudhiraka, a political scientist at Chulalongkorn University.

Some analysts say Thaksin, who lives abroad to avoid jail on a graft conviction he says was politicized, is determined to bring down the government before an annual military reshuffle in September that could strengthen the government's power base.

He may still try to force the pace.

"Thaksin wanted to end the game quickly. While some idealists in the movement may opt for a long-term struggle, Thaksin may take more risks," said a top security official who declined to be identified.

(Editing by Robert Birsel and Bill Tarrant)