Factbox: Key political risks to watch in Thailand

BANGKOK Fri Jul 1, 2011 4:17am EDT

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BANGKOK (Reuters) - Thailand is bitterly polarized ahead of a July 3 parliamentary election. Rivalries between different camps -- which go beyond political parties -- are deeply entrenched and the poll may not solve the problems that have dogged the country for six years.

The election could be close and a coalition government is likely. The election or its outcome could be disputed, raising the possibility of protests or intervention by the judiciary or military.

Thailand's stock market, the region's second-best performer last year, has been hit by political uncertainty and the index has fallen 7.6 percent since May 1, while the baht at almost 31 per dollar is trading near its lowest in five months.

Still, Southeast Asia's second-biggest economy is projected to expand 4.1 percent in 2011. Inflation is a concern and another quarter-point interest rate rise, to 3.25 percent, is expected on July 13.

POLITICAL INSTABILITY

A color-coded political conflict, broadly pitting "red" urban and rural poor against "yellow" royalists, urban elites and the military top brass, shows no sign of resolution and the election is expected to again showcase this schism.

The United Front for Democracy Against Dictatorship (UDD) of the "red shirts" accuses royalist conservatives and the military of meddling in politics and the judiciary to protect their interests. Many red shirts expect some kind of intervention if the opposition Puea Thai Party they back wins most votes.

Thailand has had six prime ministers and numerous disruptive showdowns since a bloodless coup ousted tycoon Thaksin Shinawatra, the red shirts' self-exiled leader and Puea Thai's de facto leader, as premier in 2006. Thaksin lives in Dubai to avoid a two-year jail term for graft, and wants to come home.

The yellow-shirted People's Alliance for Democracy (PAD), which helped undermine two of Thaksin's elected governments, has urged the Election Commission to disband Puea Thai because of its links to Thaksin. The PAD's power as a protest movement has dwindled, but if Puea Thai forms a government and seeks amnesty for Thaksin, it could regroup, especially if the tycoon's powerful enemies throw their weight and wallets behind it.

Scores of red shirts were killed and hundreds wounded when the military crushed their nine-week Bangkok protests last year, but its support has not waned. The violence included clashes between the military and mysterious "men in back" gunmen who mingled with the red shirts and were believed to have connections to pro-Thaksin elements in the military.

Thaksin's support base has been reinvigorated since his sister, Yingluck Shinawatra, 44, entered the race on May 16 as Puea Thai's prime ministerial candidate. Opinion polls suggest Puea Thai could win a plurality of the 500 parliamentary seats.

Most analysts believe bitterness is so deep between the pro- and anti-Thaksin camps that a trouble-free outcome is unlikely.

What to watch:

-- The UDD. It has promised to respect the election result, if it is fair, but could react against any perception of foul play or interference in the poll or formation of a government. Protests could ensue, with troops redeployed, risking clashes and the collapse of whatever government takes office.

-- Election Commission. Allegations of vote-buying and irregularities could be rife. Disqualifications might be higher than normal, increasing the probability of disputes.

-- Formation of a government. A coalition is expected, but if the party with most votes cannot form an alliance, the second-placed party gets a chance to lead a government. The UDD has indicated it would not accept this outcome should Puea Thai find itself back on the opposition benches.

-- The PAD. The ultra-nationalist group not want Thaksin's allies back in office and rejects talk of an amnesty for him. They might step up their campaign to thwart Puea Thai.

-- Legal challenges. The PAD wants Puea Thai dissolved and a group linked to the movement has filed a complaint with a state investigative body accusing Yingluck of perjury during an assets concealment case involving Thaksin. More challenges could be launched, which, if accepted by a court, could topple another government and a trigger a new round of confrontation.

-- The deeply politicized military has a long record of staging coups or "silent coups" to remove or preserve governments but military intervention would risk another UDD backlash. Army chief Prayuth Chan-ocha insists the military will not interfere, but his comments suggest otherwise. He has urged the public to choose "good people" to prevent a repeat of previous elections. This was seen as a move to discredit Puea Thai, whose predecessors have won every election since 2001.

-- Tension would likely rise between the military and the government if Puea Thai takes office. The military leadership will not want the government interfering with military appointments or the annual defense budget, which has nearly doubled to 154 billion baht ($5 billion) since the putsch.

THE KING'S HEALTH

A key question in Thailand's political conflict is what role the constitutional monarchy should have in running the country.

The 83-year-old King Bhumibol Adulyadej's influence as a unifying figure and moral arbiter is accepted by most Thais, but his heir, 58-year-old Crown Prince Maha Vajiralongkorn, has yet to command the same popular support.

King Bhumibol has been in hospital since September 2009. He made several public appearances in June and he appears to be in better health than when he was admitted. However, his condition has focused attention on what will happen when his reign ends.

If the crown passes to Vajiralongkorn while political divisions remain, opposing factions may intensify their struggle.

What to watch:

-- Public appearances by the monarch and statements from the palace on the king's health.

-- Public criticism of the palace's privy council of royal advisers.

(Editing by Daniel Magnowski)

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