Ostensibly, the two principal defence-related issues faced by Thailand remain the on-going sectarian strife in the south of the country, and the continuing border dispute with Cambodia. However, recent domestic political ructions, including the blockading of Bangkok’s two international airports, have led to a dramatic increase in overall uncertainty. It is looking increasingly likely that a Democrat-led government will be in power in the near future. Such a government would, in our view, shift the balance of power from the populist movement – shaped by the controversial but highly popular former premier Thaksin Shinawatra – back to the establishment, effectively rewinding the political tape back to the 1990s, when a number of shambolic and short-lived coalition governments took turns at the helm.

Concerns have also grown that the military could respond to the protests by abusing wide-ranging legislation that gives the army enhanced powers to deal with national security threats.

In the south, an increase in the number of assassinations of schoolteachers – the most visible and accessible government employees – has become a major concern. Hopes that creative solutions to the southern unrest can be found are remote, given the political unrest. Moreover, a weak local economy and rising unemployment are key issues that are fanning the flames of discontent in the south. We are currently forecasting a slowdown in real GDP expansion to 3.8% in 2009, from a downwardly revised 4.2% in 2008, and stress that the risks are tilted to the downside.