What lies ahead for divided Thailand?

The controversial founder of a Thailand’s “yellow shirts” protest group was elected leader of a new political party on Tuesday, a move likely to deepen the country’s intractable four-year crisis.

Media firebrand Sondhi Limthongkul will head the New Politics Party, which will become the parliamentary arm of the royalist People’s Alliance for Democracy (PAD), whose prolonged protests helped bring down two elected governments backed by ousted former Thai premier Thaksin Shinawatra.

Below are possible scenarios in Thai politics based on views of academics and risk analysts:

Constitutional reform gains momentum, ends crisis
Prime Minister Abhisit Vejjajiva wants to amend an army-drafted charter and put it to a public referendum, but the changes need to first be agreed upon by political parties, each with something to lose or gain from the changes, making an agreement unlikely.

The process will likely involve demands for banned politicians to be given amnesty and the electoral system to be reformed in ways that would disadvantage other political players. Although this scenario would be the most favourable, reaching a consensus could be tricky in the current climate.

“A smooth process of amending the constitution and calling a new election would be the best outcome for the country. However, there are still plenty of stumbling blocks in the prime minister’s path,” Standard Chartered said in a note to clients.

PM dissolves parliament
Pressure has been piling on Abhisit from pro-Thaksin “red shirt” protesters, his coalition partners and even his close aides in the Democrat party, prompting speculation about house dissolution and new elections.

Constant politicking, bickering and backstabbing within what is being called the “coalition of the unwilling” is happening on a daily basis, suggesting horse-trading, political alliances and defections are already being discussed privately ahead of new polls.

However, snap polls at this time would only favour the pro-Thaksin camp with its large base of rural support, largely in the vote-rich northeast, and are therefore unlikely as coalition parties risk faring poorly in a public vote.

House dissolution would not be a market-friendly scenario and would heighten the prospect of more political strife, potentially unnerving investors and slowing a nascent, export-led recovery in Thailand’s $260 billion economy, Southeast Asia’s second-biggest.

Elections called, pro-Thaksin party wins most votes
The loyalty of the rural masses to Thaksin, and the prospect of his comeback, is likely to help the Puea Thai—the latest incarnation of his disbanded Thai Rak Thai political juggernaut—win the most votes in the next election, if not enough for an outright majority.

The prospect of a Puea Thai victory and a fugitive criminal back running the country from behind the scenes could lead to more unrest, with the multiple fronts of the anti-Thaksin camp refusing to accept another nominee government.
Under this scenario, stocks and the baht currency would most likely fall.

“This would be an anathema to the royalist conservative establishment and would result in prolonged political instability,” Economist Intelligence Unit said in a recent report.

Abhist consolidates rural support, retains power
Abhisit has a wave of government stimulus measures in place worth nearly $43-billion over three years aimed at reviving the economy and winning over the rural poor, who revere Thaksin because of his populist policies.

These include thousands of small “shovel ready” projects—from irrigation schemes to asphalt roads, upgrades of rural schools and renovations of district health clinics.

Abhist’s Democrats have always struggled to win mass support.

Recent polls show the public is unhappy with the government’s performance and analysts say it will take more than handouts for people to switch allegiance. Albeit unlikely, this scenario would be positive for markets.

Stalemate drags on, military seizes power
Rumours of a putsch in coup-prone Thailand continue to swirl but analysts say Abhisit still has the backing of the politicised and power-hungry military, who may realise their long-term future in politics is dependent on a civilian government sympathetic to its needs.

A coup would be the least market-friendly scenario given the abysmal performance of the last army-installed government, which used botched economic revival measures and scared off investors. (Editing by Jason Szep)

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