ANALYSIS – Thaksin launches new offensive to win back power

BANGKOK (Reuters) - His opponents may dismiss him as a fugitive criminal and a spent political force, but ousted former prime minister Thaksin Shinawatra is redoubling his efforts to return to power in Thailand,

and the government is stumbling. His red-shirted supporters have been pushing for a royal pardon of his corruption conviction,

which would allow the exiled billionaire to come home. Now Thaksin has raised the stakes with a series of moves likely to add fuel to an intractable crisis in Southeast Asia's second-biggest economy.

His acceptance of an offer to become an adviser to the government of neighbouring Cambodia has caused an ugly diplomatic row,

with the prospect of his running a political campaign from across the border angering the powerful opponents who have fought hard to keep him at bay.

"The government is being seen as incompetent and we're slowly moving towards becoming a failed state," political scientist Pitch Pongsawat said.

"Thaksin wants to steal the show ... and we're headed for a whole different battle."

The offer of a home for Thaksin in Cambodia has triggered a backlash in Thailand that has led to the withdrawal of envoys from each other's countries.

He's not arrived yet, but Cambodia says it will turn down any demand to extradite him, calling his graft conviction politically motivated.

It remains to be seen whether all of Thaksin's supporters will back his latest move, which critics see as an unpatriotic alliance with an old foe that will stoke nationalist fervour.

"He can be forgiven for trying to embarrass his opponents who are holding the rein of power. But everything has its boundary -- and Thaksin has crossed it,"

the anti-Thaksin Nation newspaper said in a front page commentary on Friday.

Thaksin, elected twice since 2001

in landslide wins before being ousted in a coup in 2006, is galvanising Puea Thai, the latest incarnation of his disbanded Thai Rak Thai party.

If it wins the next election -- expected sometime next year -- there could be more turbulence in Thailand.

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"There are clearly forces deeply opposed to Thaksin and the prospect of him returning or regaining power through his party would be another step towards greater instability,"

Danny Richards of the Economist Intelligence Unit said."It's partly the failure of the government, but for a lot of people, Thaksin is still seen as the best alternative."

Thaksin's strategy has focused on kicking the government while it is down, using video addresses and new media such as Twitter to rally supporters and

discredit Prime Minister Abhisit Vejjajiva as cracks appear in his shaky six-party coalition and his opinion poll ratings slump.

The latest manoeuvring by the Thaksin camp shows how the former telecoms tycoon remains a major political stakeholder despite his self-imposed exile,

marshalling his loyal following in the countryside against the royalist, urban elites who have traditionally held the power in Thailand.

One huge step was the recent appointment as chairman of Puea Thai of a former prime minister and ex-army chief, Chavalit Yongchaiyudh, whose

diplomatic clout and military connections can bolster the party.

Indeed, within days of Chavalit joining, dozens of retired -- but still influential -- police and military officers had flocked to Puea Thai.

Some analysts say recruiting military muscle is part of Thaksin's long-term strategy, a move to shore up alliances with an eye on a potentially turbulent royal succession in a country where the crown commands huge respect and influence.

"If anyone wants to prepare bargaining and leverage, they have to get their act together now," political analyst Thitinan Pongsudhirak said.

"Thaksin is pursuing a multi-pronged offensive to win back power, shaking things up with new momentumand dynamism. He's not a spent force. The polls suggest he leads Abhisit -- and they can't get rid of him."