BEIJING (Reuters) - Thailand's finance minister gave a slightly improved outlook for Southeast Asia's second-largest economy on Wednesday, saying a swift end to the Thai political crisis will be instrumental in ensuring growth stays on track.
Anti-government protesters, called the "red shirts", have massed in the Thai capital Bangkok over the past two months, crippling the government and worrying foreign investors.
The International Crisis Group warned earlier this month that Thailand faces an "undeclared civil war", but Finance Minister Korn Chatikavanij told Reuters policies such as better access to education and income guarantees for farmers could help reduce the inequalities fuelling unrest.
"Civil war is a big word, and we're a long way from that. But having said that, the conflict that exists is real," Korn said in an interview in Beijing.
"I am quite sure that an ongoing commitment to these kinds of policies will help in reducing the differences and reducing the level of tension in our society in such a way as to avoid the worst-case Armageddon that's been talked about," he said, adding record-low interest rates would likely rise when the crisis ends.
The protesters vowed to stay on despite the army chief's threat to use force and Prime Minister Abhisit Vejjajiva's warning that they must end the rally by Wednesday.
Korn, whose comments came before the Thai army and Abhisit's warnings, offered a slightly improved outlook for 2010 GDP, projecting economic growth of 4.5 to 5 percent, in line with pre-crisis estimates. On April 30, he said the crisis had already cut economic growth by half a percentage point but on Wednesday he said it could shave 0.3 of a percentage point off the target.
Thailand's first quarter GDP is expected to have grown by 9 percent from a year ago, said Korn.
Tourism, which makes up over 6 percent of Thailand's $260 billion economy, has been hit by the protests, although Korn said he hoped bookings would recover before the peak Christmas season.
"The protests have pretty much really only affected Bangkok, and only the center of Bangkok, but there is a general sense of unease," Korn said.
Korn said that once the political crisis is resolved, he expected the central bank to raise the main policy rate, which has been kept at a record low of 1.25 percent for about a year.
He did not offer a timeframe, but the next rate-setting meeting is scheduled for June 2.
"Once there is a resolution on the political front, I would be surprised if they didn't begin to tighten rates," said Korn, an Oxford graduate.
Despite the protests, the Thai baht has been well-supported, firming about 3 percent since the beginning of the year due to overall strength in Asian currencies, Korn said.
Korn was in Beijing to meet Chinese counterpart Xie Xuren and banking regulator Liu Mingkang, after completing the sale of his ministry's stake in Thai lender ACL Bank to China's ICBC as part of a $550 million takeover.
Korn urged Liu to allow Chinese banks to invest in Thailand's stock market. Firms such as Thailand's Banpu are also eyeing opportunities in Inner Mongolia's power sector.
"We need ... to put our house in order," Korn said. "Once that's done, I don't think we will have a problem in explaining and regaining the level of confidence amongst foreign investors."
($1 = 32.3 baht)
Additional reporting by Li Ran; Editing by Ken Wills and Paul Tait