May 6 (Bloomberg) -- Thai Prime Minister Thaksin Shinawatra began a three-day visit to the southern provinces to survey the scene of four months of religious strife that has killed as many as 200 people, scared off tourists and cast doubt about the government forecasts for the fastest growth in nine years.

``The biggest concern is that the violence will spread to other parts of the country, with a negative effect on foreign investment,'' Isara Ordeedolchest, an economist at Tisco Securities Co., said in a note to investors.

The government's ability to steer Southeast Asia's second- fastest economy toward 8 percent growth this year and fulfill a pledge to double tourist arrivals in the next five years may hinge on how the unrest is handled. Thailand's $8 billion dollar tourism industry caters to 11 million visitors a year, second only to China and Malaysia in Asia.

``If something unexpected happens, I don't know what we will do,'' Thaksin told reporters at a briefing in Bangkok two days ahead of his trip to the south. ``I will do my best to achieve 8 percent growth.''

Travel Advisories

Britain and Australia urged citizens to avoid Muslim- majority provinces in the predominately Buddhist nation, after clashes on April 28 killed 108 rebels and five government security forces. The separatist Pattani United Liberation Organization said it can't guarantee the safety of tourists at popular resorts such as Phuket. As many as 100 government officials, troops and school teachers have been killed in the violence this year, Thaksin said.

``The violence has taken the sheen off Thailand's image,'' said Amit Bhartia, a fund manager at Grantham Mayo Van Otterloo & Co., which manages about $7 billion in emerging markets in Berkeley, California. The handling of the crisis ``smacks of autocratic behavior on the part of the government.''

Thai soldiers and police engaged in an eight-hour battle with guerillas on April 28 in the Muslim-majority provinces along the Malaysian border, after rebels attacked police stations and other installations, the government said last week. It blamed the violence on ``drug dealers, disgruntled politicians and separatists.''

Confidence

Investors are watching to see if the trouble spreads. Thai consumer confidence in March fell to a six-month low amid concern about the trouble, according to a survey by the University of the Thai Chamber of Commerce in Bangkok.

Thailand's SET index posted its biggest five-day decline in almost three years, extending its fall since the clashes on April 28 to 5.7 percent. It fell 1.6 percent to 634.01 in Bangkok today. Markets were shut Monday and yesterday for national holidays.

The nation's economy depends in part on tourism, which accounts for about 5 percent of gross domestic product, and on foreign investment, which rose 50 percent to $1.5 billion last year.

Among the overseas investors taking stock of the situation may be Tesco Plc. The U.K.'s largest food retailer is planning a new outlet in Pattani, scene of some of last week's violence. The company ``is still waiting and watching,'' said Anusart Suwanmongkol, managing director of C.S. Pattani Hotel, owner of the property site where the new store is to be built. ``This climate will create uncertainty.''

Tesco

Tesco retailer is Thailand's largest hypermarket operator, with 48 outlets and 30 smaller stores. One of Tesco's three largest stores in Asia is located on the holiday island of Phuket. Spokesman Justin Barnett in Bangkok said the company doesn't comment on ``specific sites until an opening date has been confirmed.''

Tourism in the three southernmost provinces of Yala, Pattani and Narathiwat is down about a 10th since visitors from neighboring Malaysia were injured in a bomb blast on March 27, local officials said. The slump has spilled over into nearby Songkhla province, said Akradej Chuachuwong, acting manager of a major tourist hotel in the city of Hat Yai.

``The hotel has lost 3 million baht a month since the violence began,'' he said. Plans for a caravan of 50 cars carrying Chinese tourists to visit the city were scrapped after last week's violence, he said.

Poverty

Critics blame government negligence for poverty that spawns discontent in the south. In Narathiwat, one of the worst-affected provinces, average household monthly income was 6,280 baht ($158) in 2001, about half the average for the 14 southern states.

``The main reason for the southern troubles stems directly from the region having been left out from the mainstream social and economic development in Thailand,'' Daniel Lian, an economist at Morgan Stanley, said in a note to investors.

Thaksin's government has set up a six-person panel to investigate last week's gun battle at the four-century-old Krue Se mosque, a favorite tourist destination in Pattani, where security forces last week killed 30 rebels.

The government must try to resolve the problems through peaceful means, said Yukob Raimani, head imam of the central mosque in Pattani. ``If the government uses violence, what it will get in return is violence,'' Yukob said after Friday prayers last week. ``It's just like a boomerang.''

To contact the reporter on this story: Arijit Ghosh in Pattani, Thailand at aghosh@bloomberg.net.

Last Updated: May 6, 2004 06:34 EDT