The beleaguered prime minister remains defiant in the face of growing public opposition, but his leadership is beginning to unravel, even though he can still count the poor rural masses - the majority of the electorate - among his staunch supporters.

In the eyes of the politically powerful middle class and civil society, Thaksin has become morally bankrupt and lost his legitimacy to rule. Since coming to power five years ago, Thaksin has been accused of involvement in an unbroken string of corruption scandals, in addition to blatant conflicts of interest involving his family and friends.

The clinching of January's deal with Singapore's Temasek Holdings to offload his family's controlling stake in Shin Corp, which Thaksin founded, for Bt73.3 billion - tax-free, thanks to some legal loopholes - was the last straw. This obviously self-serving act gave the lie to Thaksin's claims of dedication to public service and exposed his ruthless machinations to monopolise political power for his own selfish interests at the expense of the public good.

All of the doors to a peaceful resolution of what is shaping up to be the worst political conflict since the popular uprising against the Suchinda Kraprayoon government in 1992 have been slammed shut, now that the key opposition parties have vowed to boycott the snap election called by Thaksin. From an economic perspective, the sooner the political crisis can be peacefully resolved, the better the chances that the country's economy can be put back on track to a strong and sustainable recovery.

The best-case scenario sees Thaksin being forced somehow to relinquish power, in compliance with demands from the anti-Thaksin camp to pave the way for constitutional reform, followed by a free and fair election. That would be good for the economy, because it would simultaneously dispel political uncertainty, strengthen Thailand's political system and bolster the country's resilient economic fundamentals.

But the most worrying scenario is the possibility of bloodshed resulting from clashes between anti-Thaksin protesters and security forces or Thaksin supporters.

Less dramatic, albeit no less harmful to the economy, would be an absence of violence and the April 2 election proceeding as planned, leading to Thaksin's Thai Rak Thai Party gaining absolute control of the House of Representatives and his being returned as prime minister. If that came to pass, it would lead to long, drawn-out political disturbances that could trigger violence at a later date.

The National Economic and Social Development Board has warned that the political uncertainty has already exposed the country's economic stability to risks that could lead to a repeat of the 1997 economic crisis. The government's economic think tank said that as doubts emerge over the country's economic stability, hedge funds could seize the opportunity to attack the baht, which could in turn become weakened by possible imbalances in the trade and current accounts and the balance of payments.

Persistent political volatility could also adversely affect tourism and investment, the main sources of the hard foreign currencies that sustain our economic growth now that the country's private sector and consumers have cut back on or delayed spending. Higher oil prices, inflation and interest rates and a possible global economic slowdown will also put pressure on the country's export-led economy this year.

Whichever way our volatile political situation is headed, one thing is sure: Thaksin can no longer provide effective leadership, and his economic initiatives, such as the mega-projects aimed at stimulating the economy, have now been sidelined. The questions are whether and for how long the private sector can play a crucial role in sustaining the country's economic health amid growing uncertainty.