By Hill & Knowlton

Politics - Recent events
As this report is being written Thailand has endured, and for the time being at least, survived yet another crisis.

Fuelled by almost nightly video-link messages from ex-prime minister Thaksin Shinawatra, red-shirted anti-government protesters took to the streets on 26 March 2009 in Bangkok to call for Abhisit and his government to step down and hold fresh elections.

On 11 April 2009 thousands of protesters then stormed the Asian summit venue in Pattaya, forcing its cancellation. A state of emergency was declared to enable foreign leaders to be evacuated - some by helicopter from their hotel roof.

The next day a state of emergency was also declared in Bangkok and its surrounding areas to help the army move in as new violent anti-government demonstrations sprang up across the capital.

After rioting and clashes that left two dead and more than 120 injured, red-shirt leaders finally called off their protests on 14 April 2009. Several of them were taken into police custody as the government provided buses to carry protesters back home.

However Jakrapob Penkair, a key protest leader, said recently that the redshirt movement "will continue fighting," although he did not specify what action they would take next.

A test for new Prime Minister
Although prime minister Abhisit Vejjajiva suffered severe humiliation with the forced abandonment of the Asian summit meeting, his tougher action and the relative few deaths and injuries that followed may have restored his credibility.

He may also have been helped by a CNN interview with Thaksin Shinawatra in which Thaksin appeared more like an embittered individual than any kind of leader. During the interview he also claimed that the military had killed many demonstrators when in fact only two people were reported to have died during opposing group clashes.

What happens now?
If Thailand's comparatively young prime minister rises to the challenge and demonstrates both strong and intelligent leadership, the country may yet survive economically with its Thai version of democracy still in place, at least for the next few months. Right now political direction and progress is so dependent on what happens with the economy however, that one word best sums up the situation - precarious.

Many analysts though take a pessimistic view. The most likely scenario, they say, is that a weak government, which should be focusing on dealing with the global economic crisis, will remain distracted by political unrest.

"This deep-seated crisis has been going on for three years now, and although the red shirts are dispersing, they are not giving up, they are not surrendering," said Danny Richards, senior economist at the Economist Intelligence Unit in London.

Given Thaksin's continued support among the poor, parties backing him could well return to government in an election if Abhisit miscalculates or is forced into early polls. But the military, the judiciary and the royalist yellow-shirted mobs would almost certainly resume efforts to oust that government.

The result could be another military takeover (Thailand's 19th actual or attempted coup since 1932), a return to mass protests on the streets by the yellow-shirts, or another judicial intervention that would leave Thailand's dispossessed more embittered and angry than ever.

Any of these developments would be bad for the baht and Thai stocks. Foreign and domestic investment in the economy would be further hit, and sovereign ratings would almost certainly be downgraded. Thailand would remain locked in political crisis, with divisions only widening.

The Thaksin Factor

Seasoned observers will always be cautious when assessing the continuing influence of Thaksin Shinawatra. Certainly his chances of returning triumphant appear to be diminishing by the day. The Thai government has now cancelled his Thai passport - a move likely to at least complicate his relationship with foreign
countries, although it was confirmed on Thursday morning that Nicaragua has granted Thaksin a ‘special ambassador' passport.

Should Thaksin be successfully arrested and brought back to Thailand, the predictable protests by his supporters might be balanced by the acknowledgement by some that the rule of law must be respected. With his arrest the government would of course also have more control over his remaining influence and ability to encourage dissent.

Economy
As Thailand's stock market resumes trading following days of political and social turmoil priority must be given says market analysts to restoring confidence in the near and medium term to encourage renewed investment.

The benchmark SET index has gained just 0.9 per cent in 2009, falling behind the 13.9 per cent increase in MSCI's developing-nation index. The SET index fell 48 per cent in 2008, the steepest drop since 1997, when the devaluation of Thailand's baht triggered an economic crisis in Asia.

"The current political situation means that less foreigners will invest in the country and that portfolio managers may actually be sellers of equity," investor Marc Faber, who publishes the Gloom, Boom and Doom report, said in an April 13 interview. "The two parties will not agree on anything for a long time to come and that has a negative impact on business and in particular tourism."

As an early indication of local economic fall out of the current political crisis Standard & Poor's lowered Thailand's domestic currency rating to A-minus from A and kept its outlook on negative blaming the country's worsening political crisis which it said was a threat to its financial stability. The agency also affirmed Thailand's BBB-plus foreign currency rating with a negative outlook.

"We believe that investor confidence has been damaged significantly," the agency said in a statement referring to the three week anti-government protests which ended on Tuesday.

Meanwhile Finance Minister Korn Chatikavanij said the anti-government protests that triggered a state of emergency are driving off tourists and investors, deepening the country's worst recession since the Asian financial crisis.

The economy may contract by as much as 3 per cent this year, Korn said on Tuesday, warning that political protests have made reviving Southeast Asia's second-biggest economy more difficult. Korn added that the government would now redouble its efforts on the economy, and plans to clarify its investment schemes and Thailand's economic potential with investors and foreign agencies at the coming meetings of the World Bank, the Asian Development Bank and the Asea+3 finance ministers' meeting in Bali, Indonesia. These messages will also be reinforced when Korn meets with investors in the UK, Singapore and Hong Kong.

Overseas sales, which make up 70 per cent of Thailand's gross domestic product, have fallen for four straight months, as demand for Asia's electronics and other goods plunges.

"The costs of this political turmoil are rising and the economy will be hit badly," said Tetsuji Sano, a Singapore-based economist at Nomura Holdings. "Foreigners are losing confidence, companies will be more reluctant to invest and tourists will choose to go somewhere else."

On Thursday morning, Deputy Prime Minister Korbsak Sabhavasu updated the local media on the economic consequences of recent unrest and announced that Thailand will need to borrow more than expected in order to stimulate the economy, which will lead to lower government revenue as well as a continued drop in private investment.

"There will be no change to the amount of the second [stimulus] package, worth Bt1.56 trillion, but we will need to borrow more as tax revenue is tending to nosedive. The Cabinet will discuss borrowing options, which should be finalized next week," Korbsak said.

The stimulus package will also be discussed at a special emergency Cabinet meeting to be held tomorrow and it is widely expected that the government will agree to raise some taxes, particularly on alcohol products.

Meanwhile Stock Exchange of Thailand president Patareeya Benjapholchai said yesterday that the exchange would meet with foreign investors in London and New York during SET roadshows in May to explain the political situation to investors, in the belief that clearer information will result in a better understanding.

Business Outlook
Minor International Pcl, the Bangkok-based owner of hotels including the JW Marriott Phuket Resort & Spa and Four Seasons in the capital city, was cut to "hold" from "buy" at Deutsche Bank AG yesterday. National carrier Thai Airways International Pcl, also based in Bangkok, was reduced to "sell" from "hold" by the bank on April 9.

"Lingering political uncertainty" may weigh on Thailand's bank stocks, with slowing spending and economic growth increasing the risks of non-performing loans, Cazenove Asia Ltd. analysts Seeping Tan and Xiushi Cai said in an April 15 report. They advised investors to sell shares of Kasikornbank Pcl and Krung Thai Bank Pcl, both based in Bangkok.

Consumer confidence fell in March to the lowest level in more than seven years, the University of the Thai Chamber of Commerce said on April 9. Overseas sales, which make up 70 per cent of Thailand's gross domestic product, also dropped for four straight months on weaker demand for Asia's electronics.

Board of Trade deputy secretary-general Pornsilp Patcharintanakul on Thursday raised concerns that the government must provide public assurances to international investors that measures are in place to prevent this kind of violence from recurring.

Pornsilp suggested that the government should hold roadshows, as political instability has weighed heavily on confidence, leading to Standard & Poor's downgrading the country's local-currency rating from "A" to "A-".

During his announcement on Thursday morning, Deputy Prime Minister Korbsak Sabhavasu acknowledged this call for the government to adopt proactive public relations strategies to restore Thailand's tarnished international image, but remained cautious:

"We need to do everything we can, but we need to be wise in expediting financial resources. Boosting the [tourism] market through overseas advertising, which could entail over Bt100 million, is useless when demand is zero. We should wait until normalcy is restored, probably three months. And in the fourth month, we will see what we can do," Korbsak said.

It is estimated the tourism sector alone will lose at least Bt100 billion at a result of the civil unrest, against Bt120 billion following the Suvarnabhumi Airport shutdown late last year.

To prevent layoffs Korbsak added that the government will work with tourism operators and enroll some workers into the government's Tonkla training program.

Thai Chamber of Commerce president Dusit Nontanakorn expressed hope on Thursday that foreigners would understand the situation and said that the private sector was ready to lend assistance in getting the country through the crisis.

Damage Done
"The damage has more or less been done in terms of discouraging investment," said Martin Hohensee, the Singapore-based head of Asia fixed- income research at Deutsche Bank. "It's obviously going to be bad for the baht because of a loss from tourism revenues."

The baht has lost 1.3 per cent in the past three months, the second-largest drop among 10 Asian currencies, excluding the Japanese yen. The currency, which traded at 35.38 against the dollar, may retreat to 36 by the end of this quarter as the economy weakens, Nizam Idris, UBS AG's Singapore-based currency strategist, said yesterday.