By Amy Sawitta Lefevre
BANGKOK, March 21 (Reuters) - Thailand's Constitutional Court on Friday annulled last month's general election, leaving the country in political limbo without a full government and further undermining a prime minister faced with impeachment over a failed rice subsidy scheme.
Weakened by five months of unrest, Prime Minister Yingluck Shinawatra is expected to defend herself before an anti-corruption commission by March 31, and a decision to seek her impeachment could come soon after that, with the Senate expected to take up the matter quickly.
As the crisis deepens, there is a growing risk that the "red shirt" supporters of Yingluk and her brother, ex-premier Thaksin Shinawatra could confront their opponents in the streets, plunging Thailand into a fresh round of political violence.
Twenty-three people have been killed in the unrest since November, and the economy suffered and tourists stayed away as protesters shut government offices and at times blocked major thoroughfares in Bangkok to try to force Yingluck out.
Consumer confidence is at a 12-year low, prompting the central bank on Friday to cut its economic growth forecast for this year to 2.7 percent from 3 percent.
Confident that her Puea Thai Party would win, Yingluck had called an election on Feb. 2 in a bid to defuse anti-government protests, and since then has headed a caretaker government with limited powers.
The Constitutional Court judges ruled in a 6 to 3 vote on Friday that the election was unconstitutional because voting failed to take place on the same day around the country.
Anti-government protesters had stopped voting in about a fifth of constituencies, and in 28 of them voting was not possible at all because candidates were unable to register.
The agitation was the latest chapter in an eight-year crisis that pits Bangkok's middle class and royalist establishment against supporters of Yingluck and Thaksin Shinawatra, who was toppled by the army in 2006 and lives in exile to avoid a jail term for graft.
Encouraged by the dwindling number of protesters in recent weeks and relative calm on the streets, the government lifted a state of emergency on Wednesday.
But the focus has shifted to the courts, in particular to the prospect of Yingluck being impeached over a rice scheme that has gone badly wrong, with hundreds of thousands of farmers not getting paid for grain sold to the state since October.
"Independent agencies are being quite obvious that they want to remove her and her entire cabinet to create a power vacuum, claim that elections can't be held and then nominate a prime minister of their choice," said Kan Yuenyong, an analyst at the Siam Intelligence Unit, referring to the courts and the anti-corruption commission.
"If they run with this plan, then the government's supporters will fight back and the next half of the year will be much worse than what we saw in the first half," he said.
More upheaval would scupper chances of the recovery in private spending and therefore in the economy in the second half of the year, that Bank of Thailand Governor Prasarn Trairatvorakul had tentatively forecast in a speech on Thursday.
The central bank's new forecast of 2.7 percent growth this year compares with the 4.8 percent it was expecting last October, just before the political crisis flared up.
"Tourism should improve after the lifting of the state of emergency and that will also help support growth in the second half," said Assistant Governor Paiboon Kittisrikangwan.
But the outlook is highly uncertain.
"We would not be surprised to see further downgrades to the Bank of Thailand's growth assessment given persistent weakness in domestic activity amidst lingering political uncertainty," said Benjamin Shatil, an economist at JP Morgan in Singapore.
Ominously, Thaksin's "red shirt" supporters are beginning to sound more militant under new hardline leaders, raising the prospect of more violence if Yingluck is forced out by the courts, the anti-corruption commission or by other means.
The commission could recommend her impeachment in coming days. She could then be removed from office by the upper house Senate, which is likely to have an anti-Thaksin majority after an election for half its members on March 30.
Some analysts say it will fall to the Senate to then appoint a "neutral" prime minister, probably the type of establishment figure the protesters have been demanding all along.
It is unclear when a new election will take place. Supachai Somcharoen, chairman of the Election Commission, told reporters it would take at least 3 months to organise a new election, and would depend on the political situation.
Somchai Srisutthiyakorn, an Election Commission member, offered two options: "The commission could discuss with the government about issuing a new royal decree for a new date or we could ask the heads of all political parties to decide together when best to set the new election date," he told reporters.
A spokesman for the opposition Democrat Party has been quoted as saying it would boycott any vote, as in February, but on Friday he said it might be prepared to take part.
"We're ready to join a new election but it depends on the government and whether the political situation is stable enough to hold a new vote," Chavanond Intarakomalyasut told Reuters.
The protesters want electoral changes pushed through before any vote, seeking to reduce the influence of Thaksin. Parties led by or allied to him have won every election since 2001.
Prior to the Constitutional Cort ruling, protest leader Suthep Thaugsuban, who was a deputy prime minister under the previous Democrat-led government, told his supporters in a speech on Thursday there would be no compromise.
"If the court rules the election void, don't even dream that there will be another election. If a new election date is declared, then we'll take care of every province and the election won't be successful again," he said.
Yingluck declined comment but her Puea Thai Party lamented the verdict. "Today, Thais have lost an opportunity to move on towards completing the election and solving this crisis," party spokesman Prompong Nopparit told Reuters. (Additional reporting by Orathai Sriring and Aukkarapon Niyomyat Writing by Alan Raybould and Amy Sawitta Lefevre; Editing by Simon Cameron-Moore)