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FACTBOX-Five political risks to watch for Thailand

BANGKOK, Feb 1 (Reuters) - A planned anti-government protest, a standoff in the shaky coalition, divisions in the army and rumours of a coup have deepened uncertainty over Thailand’s political future and unnerved markets and investors.

Thai 5-year sovereign credit default swaps THGV5YUSAC=R are trading at a spread of 111.50 basis points, compared to a weighted average of 134.40 for the Thomson Reuters Emerging Asia Index. This implies lower default risk than regional peers like the Philippines, with a spread of 180.50 and Indonesia at 177.00, but higher than Malaysia which has a spread of 101.00.

Following is a summary of key Thailand risks to watch:


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 said last month that political instability was a key factor capping growth, due to its negative impact on the confidence of both consumers and investors. Economic policymaking is also being disrupted, analysts say.

“During the recovery phase of this cycle, many neighbouring countries are preparing for the next wave of international capital inflows,” Standard Chartered said. “Political concerns are distracting Thailand from such plans, which will be critical to medium- to long-term economic development.” [ID:nSGE60A0B4]

What to watch:

-- State of Prime Minister Abhisit Vejjajiva's coalition government. The army-backed, six-party alliance remains shaky and stocks .SETI hit a seven-week low on Jan. 27 on fears of a house dissolution after Abhisit's Democrats said they would not support coalition partners' constitution amendment plans. However, analysts say this is unlikely as none of the parties are in a strong enough position to contest another election.

-- Early parliamentary dissolution. An election could return power to 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.

-- A planned mid-February protest lasting over a week by “red shirts” allied with Thaksin. Although the last six rallies have been peaceful, this one is being dubbed “the final battle”.

-- A no-confidence motion by Puea Thai. While most analysts expect the government to survive the televised grilling, disgruntled coalition partners could turn on Abhisit if they are not offered concessions, and ensure there are enough votes to bring down the government.

-- Seizure of the Shinawatra family’s assets. The Supreme Court will rule on Feb. 26 on whether to confiscate $2.3 billion of assets the prosecution says was “unusual wealth” accrued after Thaksin took office. This would provoke anger among Thaksin’s supporters, who believe the charges are politically motivated.


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 current 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, with many pro-Thaksin officers purged after his ouster and reportedly ostracised by the top brass. A widening of these divisions heightens the prospect of a coup and, 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.


The 82-year-old King Bhumibol Adulyadej has been in hospital since Sept. 19. Although recent pictures appear to show he is in better health, 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:

-- Updates 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.


Thailand is widely perceived to have become more corrupt during the past five years of instability and a recent scandal in a $2.6 billion healthcare spending scheme, which led to two cabinet resignations, has further discredited the government.

What to watch:

-- Latest estimates of level of Thai corruption, such as the World Governance Indicators project, Transparency International and others. Signs of further worsening will not have a short-term impact on markets but will damage investment in the longer run.


The insurgency by separatist ethnic Malay Muslims in Thailand’s southernmost provinces has become more bloody in recent years, but violence has been almost wholly confined to the deep south and so has had little impact on markets. That looks unlikely to change, but the conflict has the potential to become more worrying for investors.

What to watch:

-- The danger of escalation. So far the insurgency remains a local, ethno-nationalist conflict. There is no sign al Qaeda sympathisers have been able to gain any influence over the insurgency, or that militants have any intention of targeting foreign businesses or the crucial tourism industry. If that changes, Thai markets and the economy could be badly hit. (Editing by Andrew Marshall)