Thailand's next government will have to win back foreign investors who have begun to turn to neighbouring countries out of concern over months of political turmoil here, experts say.

Malaysia and Vietnam have attracted big new investments during Thailand's crisis, while companies committed to the country are still waiting to see what happens after Oct 15 elections, the Joint Foreign Chamber of Commerce in Bangkok said.

"Greenfield projects now look to Vietnam or Malaysia, which have been active in investment promotions," the chamber's president Peter van Haren told AFP.

US-based Seagate Technology, the world's largest maker of hard disks, picked Malaysia for its billion-dollar new factory instead of Thailand, even though it already maintains a key global production base.

That followed the announcement by US chip giant Intel in late February that it had picked Vietnam for its new 300-million-dollar plant.

Vietnam has been basking in good economic news, with the economy growing by 8.4 percent last year, among the highest rates worldwide.

Meanwhile in Thailand, government figures showed that new applications from both foreign and domestic investors plunged by 53 percent in the first half of the year.

The turmoil has also forced the government to trim back its growth forecast for this year, now pegged at 4.0-5.0 percent.

"Confidence of foreign investors has been shaken by political uncertainties in Thailand. Those looking at the long-term are just wait-and-see for the investment climate to be settled," said Van Haren.

The Japanese Chamber of Commerce in Bangkok says Japanese investors are now considering Vietnam, China, Malaysia and Indonesia as alternatives.

"Thailand is the first priority in terms of investment potential among Japanese investors, (but) political problems have reduced their confidence," its president Tetsuji Banno said in the local English-language daily The Nation.

Thailand may lose out to other countries if the political situation isn't settled before mid-2007, he said.

Free and fair polls crucial

The problems began in January when Prime Minister Thaksin Shinawatra's family earned US$1.9 billion from a tax-free sale of telecom stock.

That angered Bangkok's middle classes, who took to the streets for months to demand Thaksin's resignation over alleged corruption.

Thaksin called the April 2 election to end the protests. His party won but the victory was undermined by an opposition boycott of the polls.

The constitutional court invalidated the results, setting the stage for the new polls on Oct 15.

"It is critical for Thailand to make sure the new election is neutral and fair for everybody to eliminate chances of any new conflicts," said Van Haren.

"The new prime minister must be able to gain the cooperation of every party involved, with ethics and of course having strong leadership to regain confidence among international business communities," Van Haren said.

Phatra Securities predicts that the new elections will smooth the political waters, but warned that dozens of pending legal cases could still throw the country back into turmoil.

In the most serious case, the Constitutional Court is considering allegations of vote fraud in the April poll against Thaksin's Thai Rak Thai and the opposition Democrat Party. A conviction could see the parties disbanded.

"Dissolution is a very unlikely possibility. Still, the risk is not zero," Phatra economist Supavud Saicheua said.

While Thailand tries to restore political stability, Vietnam will enjoy the global spotlight later this year when world leaders, including the US and Chinese presidents, are due to visit Hanoi in November for a summit of the Asia Pacific Economic Cooperation forum.