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S&P also cited "heightened risk of widespread violence following the occupation of the two important airports by anti-government protestors" that lowered the chances of returning to stable political conditions in the near term.

The sovereign ratings could be downgraded "if economic performance weakens sharply as a result, causing government finance to deteriorate seriously or banks' asset quality to worsen markedly".

While the spark of political violence can be lit any time, the police treatment of the protesters has been to skirt violence as much as possible, which is why a bloody clash between protesters and the police has been avoided thus far. S&P may be referring to possible confrontation between pro-Thaksin supporters reported to be massing for a pro-People Power Party rally that may come into contact with the PAD protesters surrounding the airport.

Any clash between anti- and pro-PPP supporters that risks becoming frequent could provoke the military into intervening by way of another coup to prevent further escalation of violence and lower the threat of civil war. But more than the potential for confrontation, which remains a key risk, one wonders why the political situation was allowed by the authorities to deteriorate this way.

At this juncture, some political observers have begun to question the turn of events while remaining suspicious of the Somchai administration's lack of resolve to put an end to the PAD's unorthodox protest moves that appear "to hostage" the entire economy. We get the impression there's a deliberate effort by the Somchai administration with Thaksin's blessings to allow the political situation to worsen as the police authorities continue to treat with benign interest the protesters' siege of the airport facilities.

While peaceful means should be resorted to first to prevent violence and bloodshed, the state has the "right to defend itself" and protect vital publicly owned installations from being hostaged or taken over by hostile local or foreign interests.

Not only does the airport siege generate the worst of political impressions but it tends to increase economic risk perception as well. The PPP can easily lay the blame on the opposition People's Alliance for Democracy for the lack of political stability. In case a new election is called, the PPP can claim it was robbed of its mandate to govern that it won in the December 2007 election.

The scenario of a new election perhaps by the first half of next year strongly suggests a caretaker government that would not be in a strong position to wage increased fiscal spending paced by higher infrastructure spending. We continue to see increasing likelihood of delayed fiscal spending that supports our GDP growth forecast of 1 per cent in fiscal 2009, with the first half of next year recording GDP's trough either by way of flat to marginal GDP decline. The S&P outlook downgrade and its bearish economic appraisal given the political overhang would also highlight the need to accelerate the policy rate-easing cycle soon.