(Bloomberg) -- Last August, former Thai leader Thaksin Shinawatra returned to his homeland after 15 years in exile following a deal with royalists who once ousted him in a coup. That marriage of convenience is now at risk of falling apart, potentially unleashing more political turmoil.

Members of Thaksin’s ruling Pheu Thai party aren’t sure whether that deal still holds, according to people familiar with the situation, who asked not to be identified discussing sensitive matters. While they are optimistic the government will survive, they won’t know for sure until courts decide on separate legal cases involving both Thaksin, who could be thrown in jail, and Prime Minister Srettha Thavisin, an ally who faces possible disqualification, the people said. 

When that might happen is unclear. Thailand’s Constitutional Court plans to meet again on Tuesday to consider more evidence on a petition filed by 40 senators seeking to remove Srettha, 62, over allegations of ethical violations. On the same day, Thaksin, 74, is set to be indicted in a royal defamation case. The proceedings in both cases could move quickly or still drag on for months. 

If that wasn’t complicated enough, the Constitutional Court is concurrently hearing a case on whether to disband the pro-democracy Move Forward party over its pledge to amend Thailand’s lese majeste law, which forbids criticism of King Maha Vajiralongkorn and other top royals. The party, which won the most seats in last year’s election, is seen as the biggest threat to the royalist establishment, and kneecapping it risks triggering more street protests. 

“It would be improper of me to discuss what’s to come in the future,” Srettha told reporters in Bangkok last week when asked about the cases.

The uncertainty is rattling investors who once cheered the possibility that Thailand may finally see more political stability. Foreign funds have pulled more than $3 billion from local markets this year, sending the nation’s benchmark SET Index to a four-year low. It’s now the worst performer of all global bourses tracked by Bloomberg in the past year.

Thaksin so far has little to show from joining hands with his former enemies. Dissatisfaction is growing with Srettha’s government as it struggles to implement campaign pledges to hand out cash, help farmers deal with debt and raise the minimum wage, all while targeting annual economic growth of 5%. It has also sought to strong-arm the central bank into cutting interest rates to spur the economy, which the World Bank forecasts will fail to expand at an annual pace greater than 3% through 2026. 

Why this is all happening now — and just how much the legal cases are connected — is the subject of much speculation in Bangkok. Thaksin’s opponents don’t have a clear path to forming a stable government unless they stage yet another military coup, a scenario that can’t be ruled out in a nation that has had about a dozen of them since ending absolute monarchy in 1932.

One theory is that the royalist establishment wants to rein in Thaksin, who has kept a high profile since he was freed from detention in February after King Vajiralongkorn commuted his eight-year jail sentence for corruption to just a year. Thaksin has been a constant presence on television, meeting with hordes of supporters, ministers and officials. He also attempted to broker a peace agreement in Myanmar and met with Malaysian leader Anwar Ibrahim in a bid to resolve a longstanding insurgency in southern Thailand. 

Although Thailand’s conservatives may depend on Thaksin for now to counter Move Forward’s rapid rise in popularity, his ambitions are increasingly breaking trust with the establishment, according to Teerasak Siripant, managing director at BowerGroupAsia in Bangkok. 

“Since Thaksin’s return, there were expectations from the establishment about what he should or shouldn’t do,” Teerasak said. “They had expected him to be behind the scenes, but that’s clearly not what’s happening. We’re seeing the same image that we have long had of him: he wants to be someone great in Thai society.” 

While Thaksin’s royal pardon was the clearest sign of a behind-the-scenes deal, the terms of any agreement remain a mystery. Not much has fundamentally changed since Pheu Thai joined forces with royalist military-backed parties last year: Both still need each other to form a government that doesn’t include Move Forward, whose stronger-than-expected performance in last year’s election represented a slap in the face to the royalists — and a challenge to Thaksin’s electoral dominance. 

Thaksin has strongly denied any wrongdoing, publicly blaming his lese majeste case on “the man in the forest” — a nickname referring to former army chief Prawit Wongsuwan, 78, who served as deputy junta leader after a 2014 coup that ousted the government of Thaksin’s sister, Yingluck Shinawatra. A party official deflected questions from reporters about Thaksin’s comment regarding Prawit, who now leads the conservative Palang Pracharath Party in the ruling coalition and has long headed the military’s Forest Preservation Foundation. 

“The case is baseless — it’s fruit from a toxic tree,” Thaksin told reporters on June 8, in his first public comments about his legal troubles, which stem from remarks he made in 2015 in the wake of the military takeover. “It’s an example that shows how charges are abused after a coup.” 

Thaksin’s remarks can be interpreted in a number of ways, the people familiar said: Either he’s confident the deal that brought him back to Thailand is still intact and he feels protected, or he’s sending a warning shot to the establishment that he’s ready to fight if they lock him up again, or that he’s looking for a scapegoat and signaling he’ll fall in line.

Thaksin similarly blamed Prawit for orchestrating the case against Srettha. The senators backing the petition came together on their shared frustrations over Thaksin, and some of them aim to pressure him into accepting a conservative leader, according to people familiar with the situation. 

Although the petition was backed by a small fraction of the 250-member military-appointed Senate, it’s now one of several moving parts that could bring down the government. The senators who initiated the petition are betting that Thaksin would still keep the coalition together and reluctantly back a conservative for prime minister, because he doesn’t want to go to jail and still wants to bring his sister Yingluck, 56, back from exile.

But that is a big gamble. If Srettha is disqualified, only seven people are eligible to become prime minister, including Prawit. The two options from Thaksin’s camp are his 37-year-old daughter, Paetongtarn Shinawatra, and 75-year-old Chaikasem Nitisiri. Both are believed to be long shots: it’s unclear if Thaksin wants to expose one of his children to the messiness of Thai politics at the moment, while the latter has had serious health issues in recent years.

If it’s not someone from Pheu Thai, Thaksin could pull the party out of the coalition and seek to link up with Move Forward. Although there is bad blood between the parties, and that scenario remains unlikely, together they would control a majority in the lower house of parliament. 

In that case, they would likely back 43-year-old Pita Limjaroenrat, an outcome the royalist establishment would want to avoid. That’s why the Move Forward dissolution case is so important: If the party is disbanded, Pita wouldn’t be able to stand as prime minister. 

In a scenario in which Thaksin doesn’t support the conservatives and can’t form a government with Move Forward, it would likely lead to a fresh election. And given that anti-establishment parties won nearly 60% of seats in an election a year ago, that’s a risky proposition for the military-backed conservatives.

By going after Thaksin, the royalist elites got themselves into a conundrum, according to Thitinan Pongsudhirak, a professor of political science at Chulalongkorn University in Bangkok. The most likely scenario, he added, is that they let Thaksin off in the end.

“They don’t want Move Forward to be in government, but now they’ve got a Pheu Thai government that they are undermining directly,” Thitinan said. “They want to teach Thaksin a lesson. But it depends on how he responds.” 

--With assistance from Philip J. Heijmans.

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