Historical background

A unified Thai kingdom was established in the mid-14th century. Known as Siam until 1939, Thailand is the only Southeast Asian country never to have been taken over by a European power. A bloodless revolution in 1932 led to a constitutional monarchy. In alliance with Japan during World War II, Thailand became a US treaty ally following the conflict. A military coup in September 2006 ousted then Prime Minister THAKSIN Chinnawat. The interim government held elections in December 2007 that saw the former pro-THAKSIN People's Power Party (PPP) emerge at the head of a coalition government. The anti-THAKSIN People's Alliance for Democracy (PAD) in May 2008 began street demonstrations against the new government, eventually occupying the prime minister's office in August. Clashes in October 2008 between PAD protesters blocking parliament and police resulted in the death of at least two people. The PAD occupied Bangkok's international airports briefly, ending their protests in early December 2008 following a court ruling that dissolved the ruling PPP and two other coalition parties for election violations. The Democrat Party then formed a new coalition government with the support of some of THAKSIN's former political allies, and ABHISIT Wetchachiwa became prime minister. Since January 2004, thousands have been killed as separatists in Thailand's southern ethnic Malay-Muslim provinces increased the violence associated with their cause.

Economic overview

With a well-developed infrastructure, a free-enterprise economy, and generally pro-investment policies, Thailand was one of East Asia's best performers from 2002-04, averaging more than 6% annual real GDP growth. However, overall economic growth has fallen sharply - averaging 4.9% from 2005 to 2007 - as persistent political crisis stalled infrastructure mega-projects, eroded investor and consumer confidence, and damaged the country's international image. The growth rate fell to 2.6% in 2008. Exports were the key economic driver as foreign investment and consumer demand stalled. Export growth from January 2005 to November 2008 averaged 17.5% annually. Business uncertainty escalated, however, following the September 2006 coup when the military-installed government imposed capital controls and considered far-reaching changes to foreign investment rules and other business legislation. Although controversial capital controls have since been lifted and business rules largely remain unchanged, investor sentiment has not recovered. Moreover, the 2008 global financial crisis further darkened Thailand's economic horizon. Continued political uncertainty will hamper resumption of infrastructure mega-projects.