Bangkok on the brink as peace offer spurned

The Thai government has rejected a compromise from red shirt protesters. With the capital occupied and army split, tension is rising

Bangkok was a city in a state of high anxiety last night after Thailand's Prime Minister rejected a peace offer from the red shirt protesters whose siege of parts of the city – and armed efforts to lift it – has led to 26 deaths, major disruption, and considerable damage to the country's economy. The red shirts immediately announced they would pull out of any negotiations with the authorities.

The protesters, who are supporters of former prime minister Thaksin Shinawatra, had said on Friday they would end a three-week occupation of Bangkok's smartest shopping and hotel district if the government dissolved parliament and announced elections in 30 days. This was a softening of their previous call for immediate dissolution, and would have given the government another 60 days to hold the election. But, after the Thai leadership met yesterday in emergency session at a Bangkok airbase, the offer was spurned. The Prime Minister, Abhisit Vejjajiva, and the country's army chief, will address the nation on television today.

Now, with tens of thousands of red shirts showing no sign of budging from their makeshift city-centre camps, rival protesters threatening to reclaim the capital, and the actions of the army an unknowable quantity, tensions are palpably rising. Few observers are optimistic of a swift, comprehensive solution. Even before the government's uncompromising response to the red shirts was announced, Pitch Pongsawat, a political scientist at Chulalongkorn University, said: "The government might have to agree to a three-month timeframe, but this doesn't mean this will ease the tensions. There doesn't seem to be any real control about what's been happening on the streets."

The streets are indeed where this protracted game of bluff and counter-bluff – interspersed with sudden eruptions of violence – has been played out, and looks increasingly like it will be concluded. Tens of thousands of red shirts remain in a fortified encampment at a district of upmarket department stores in central Bangkok, sleeping on the pavement, vowing to stay until parliament is dissolved and defying a state of emergency that bans large gatherings of protesters.

Opposite the mouth of Silom Road (roughly the equivalent of Oxford Street in London), the red shirts have erected a barricade of tyres and bamboo stakes guarding their virtual village of outdoor showers, tents and stalls selling food, red clothing and souvenirs along more than a mile of one of the fanciest streets in the capital. Four luxury hotels, half a dozen shopping malls and office buildings in the area have closed, resulting in a loss of millions of pounds a day.

So far, the violence, which began on 12 March, has resulted in 26 deaths and almost 1,000 wounded. All told, 45 incidents of grenade attacks and bomb explosions have shaken the city. Curiously, nobody has yet been apprehended, giving rise to speculation that some attacks were the work of renegade army officers either seeking to provoke the red shirts or to settle scores within the fractious military.

Just three days ago, one person was killed and 86 wounded when five grenades blasted holes through the roof of an elevated Skytrain station and shattered cafe windows near the landmark Dusit Thani hotel. Authorities immediately closed the elevated rail line that runs down Silom, and which serves thousands of commuters. The station has also been an overhead bunker for soldiers to monitor protesters.

In the aftermath of the latest fatality, several countries strengthened their travel advice for Thailand. The United States, Britain and the Scandinavian countries have urged their citizens to avoid Bangkok, while Australia told its nationals "to reconsider your need to travel to Thailand".

For the protagonists, their differences appear irreconcilable. The red shirts say British-born and Oxford-educated Vejjajiva came to power illegitimately in December 2008. They are mainly rural and working-class supporters of former Prime Minister Thaksin Shinawatra, and pro-democracy activists who opposed the military coup that removed him from power in 2006. They believe Vejjajiva's government is illegitimate because it came to power under military pressure through a parliamentary vote after disputed court rulings ousted two elected pro-Thaksin governments.

Earlier, there had been some optimism that some sort of way out of the current mess could be cobbled together. Jaran Ditthapichai, a red shirt leader, said his group held unofficial talks with the government on Wednesday and Friday. He claimed the government privately expressed a willingness to compromise, suggesting it could dissolve the government in three months instead of the six on which it originally insisted. (The other conditions were for the government to stop harassing the group, and to hold an impartial investigation into the violence that has marred the protests, including a government sweep on 10 April to remove the red shirts that resulted in 25 deaths and more than 800 injuries.)

A powerful backlash against the red shirts is now growing among the supporters of Bangkok's royalist establishment, who took to the streets on Friday holding placards reading "no dissolution". The pro-government protesters include workers inconvenienced by the demonstrations and members of the "yellow shirts", who oppose Thaksin's return to power. These counter-demonstrators, many of whom believe the red shirts want to topple Thailand's monarchy, can pack a formidable punch, and, in the recent past, have proved their street-fighting virility. Two years ago, they blockaded Bangkok's international airport, stranding at least 230,000 people until a court dissolved a pro-Thaksin ruling party for electoral fraud.

The violence and deepening political divide has spurred some talk of civil war in South-east Asia's second-biggest economy. "This hardening of the battle lines between the two sides does not bode well for Bangkok's security situation and a risk of another, and this time maybe even more violent, crackdown is immediate," risk consultancy IHS Global Insight said in a report. And, to add to the combustibility, diplomats and analysts say the army's middle ranks look dangerously split with one faction backing the protesters led by retired generals allied with Thaksin, who was ousted in a 2006 coup and later sentenced in absentia for corruption.

If the government wants to forcibly end the protests and occupation of the streets, they will have to bring better, or more efficient, powers to bear than they have done so far. Military units from the 200,000-strong army have been routed in several confrontations with the crudely armed demonstrators, and the police have often melted when faced with determined protesters. On Friday, Silom was filled with riot police, but a show of strength is, as this government well knows, very different from an effective application of it.

And, as Thailand's political turmoil enters its seventh week, the economic toll is spreading. Ordinary workers, parents and shoppers often reach their destinations to find signs that say: "Sorry, closed due to political unrest."

Tourism accounts for 6 per cent of the country's economy and has steeply declined since the protests started. Cancellations are mounting from tourists and business travellers. Thailand has already lost more than £20m (1 billion baht) from event cancellations and is projected to lose several times that amount in coming months, according to the Thailand Convention and Exhibition Bureau.

The stock market has tumbled 7 per cent since just before the violence erupted. The Thai stock exchange says 34 listed companies that were planning annual shareholder meetings in the city have changed their plans because of safety concerns. But, this weekend, there are more important things than share prices and corporate gatherings at stake. Bangkok is entering the unknown.