The economic think tank said that as stability is compromised, hedge funds are ready to strike at the baht currency, which could spark a chain reaction similar to the one that struck nine years ago.

 "If political tension cannot be resolved by June, it could lead to an alarming imbalance in the trade account, the current account and the balance of payments," Ampon Kittiampon, the board's secretary-general, told a press conference yesterday while delivering the NESDB's quarterly economic assessment.

Political conflict has been intense, with a large number of protestors demanding caretaker Prime Minister Thaksin Shinawatra's resignation and the main opposition parties vowing to boycott a snap election on April 2. However, Ampon said he was optimistic that the turmoil would end by June.

In that case, economic growth will not slow much. He estimated that if problems are resolved by then gross domestic product (GDP) would expand between 4.5 and 5.5 per cent, down a hair from an earlier projection of 4.7 to 5.7 per cent. Last year the economy grew 4.5 per cent.

Ampon said it was impossible to convert current political uncertainties into numbers and plug them into an economic model, because it all depends on how the political deadlock will end.

He said persistant political volatility could adversely affect tourism and investment.

"We foresee that this year should be a year of investment and high export growth, therefore we need foreign currencies to finance investment and imports of raw material, as well as capital goods," Ampon said.

He said he was concerned about private investors receiving privileges worth Bt1.6 trillion from the Board of Investment, as they wait to proceed on new projects this year.

 Meanwhile, the country is expecting a US$9.6-billion (Bt372 billion) trade deficit this year, largely because of high imports of raw material and capital goods as well as the ongoing high crude oil price.

If the tourist industry's recovery from the tsunami is disrupted by political factors the current account will deteriorate. Even without political risk, it is expected to be $4 billion (Bt154.85 billion) in the red, equivalent to between 2 per cent and 2.5 per cent of GDP.

Political tension may also deter capital inflows via both the equity market and foreign direct investment, posing a threat to the country's balance of payments.

"If we have imbalances in all three accounts - the trade account, the current account and the balance of payments - it could destabilise the economy and hedge funds might attack the baht currency like they did during the last financial crisis," Ampon said.

If the country can avoid serious political trouble, the baht is expected to deteriorate to an average of Bt40 per US dollar, up from last year's average of Bt41 but down from the current Bt38.7.

Higher oil prices, inflation and interest rates and a possible slow down in global economic growth will also pressure the economy this year, he added.

The Bank of Thailand projects growth this year of between 3.75 per cent and 4.75 per cent, the Finance Ministry estimates it will be between 4.5 per cent and 5.5 per cent, while the University of the Thai Chamber of Commerce predicts that growth could be as low as 3.5 per cent if there's an outbreak of political violence.

Wichit Chaitrong

The Nation