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Thailand's Constitutional Court has ruled that the People Power Party
(PPP) should be dissolved and that the current Prime Minister, Somchai
Wongsawat, will be banned from politics for five years. The announcement
was expected and the case against the PPP stemmed from charges that the
party broke the law ahead of last December's general election. The court
also announced that two junior parties in the PPP-led coalition should
also be banned; they are Chart Thai and Matchima Thupataya.

The focus in the near term will be on whether the People's Alliance for
Democracy (PAD) will leave Suvarnabhumi Airport, the capital's
international terminal, which they took over last week. Although one of
the aims of the PAD has been the removal of the Prime Minister, they
have also stated that they want to change the country's constitution in
order to lessen the importance of the rural vote. Most of the support
for the PPP came from the rural areas.

Even if the PAD leaves the airport, the banning of the PPP and the two
other parties is unlikely to lead to a significant and sustained
improvement in Thailand's political landscape. The PPP has prepared for
such an outcome and has already set up another party, Puea Thai, to
absorb the party's MPs (who have not been banned by this ruling), and
would be expected to carry the PPP's mantle in any election. Likewise,
we expect the remaining MPs from the two other parties to form new
parties or be absorbed into one of the remaining parties.

It should also be noted that today's ruling does not automatically mean
that new elections will be called. Under the auspices of the new party,
the remaining members of the PPP have announced that they will try to
form a new coalition government with other parties. On 8 December, they
plan to hold a leadership election in order to try and appoint a new
Prime Minister. Even with a number of the senior party leadership being
banned from politics, the party still holds around 45% of the seats in
the 480 member parliament. In comparison, the main opposition party, the
Democrats, hold just over 34% of the seats. With both the leadership of
the Chart Thai and Matchima Thupataya also being banned, forming a
ruling coalition is likely to be difficult, but not impossible.

However, the most likely outcome will be that new elections will be
called at some point over the coming weeks. Thailand's Army Chief
Anupong Paojinda suggested such a course of action last week as a way of
relieving tensions. Without the backing of the military, a new
government is unlikely to last in office, especially if the PAD
continues with their protests.

Assuming that parliament is dissolved by a caretaker prime minister, new
elections are likely to be held by early New Year. The PPP's strong
support in the countryside would, on the surface, suggest that the most
likely outcome would be that the party remains the largest party in a
new parliament. This in turn would suggest that the PPP could try to
hold onto power in a new coalition government. Under such a scenario,
the PAD is likely to once again step up its protests and the lack of
political stability will continue to act as a brake on growth.

One caveat to this scenario is that the PPP is made up of a number of
factions that could split from the party. Although so far there has been
little evidence of this happening, we believe the situation could change
over the coming weeks. Given the pressure on the party in the courts and
from the establishment, some of the factions could decide that they are
better off splitting from the PPP to form an alliance with the Democrat
Party (the main opposition party) or one of Thailand's smaller parties
in order to form a new government. One thing to watch will be whether
all of the remaining MPs from the PPP join the Puea Thai. If not, the
chances of the PPP splitting up would in our view significantly rise.