Nov. 9 (Bloomberg) -- Fugitive former Thai Prime Minister Thaksin Shinawatra plans to visit Cambodia this week, a move that may stoke tensions between the Southeast Asian neighbors before a landmark meeting with U.S. President Barack Obama.

Thaksin is set to travel to Phnom Penh on Nov. 12 in his capacity as Cambodian Prime Minister Hun Sen’s economic adviser, Foreign Ministry spokesman Koy Kuong said by phone today. The appointment last week prompted Thailand to downgrade diplomatic relations and review business deals.

Thai Prime Minister Abhisit Vejjajiva plans to co-chair with Obama the first meeting between a U.S. president and the Association of Southeast Asian Nations on Nov. 15 in Singapore. Hun Sen will also attend, and some analysts said Cambodia’s offer to Thaksin was designed to embarrass the Thai leader.

“The timing here is calculated,” said Thitinan Pongsudhirak, director of the Institute for Strategic and International Studies at Chulalongkorn University in Bangkok. The dispute is “a multiplied embarrassment” because the Obama meeting is “not only for Thailand and Abhisit, but also for Asean as a whole.”

Singapore, host of the U.S.-Asean summit, said in a Nov. 6 statement the dispute was “not good for Asean.” It urged both countries to “keep the larger interests of Asean in mind.”

Disputed Waters

Thailand said last week it would terminate a 2001 agreement with Cambodia that outlined a plan to reconcile 10,422 square miles of disputed waters in the Gulf of Thailand. The cancellation will delay development of oil and gas reserves in the area, said Prasert Bunsumpun, chief executive officer of PTT Pcl, Thailand’s largest energy company.

PTT’s oil distribution business in Cambodia is “functioning as normal,” Prasert said. Other Thai firms with operations in Cambodia include Siam Cement Pcl, the nation’s biggest producer of the building material, and Khon Kaen Sugar Industry Pcl, which opened a plant in Cambodia this year.

Cambodia, Thailand’s 18th-largest export market, imported more goods from its neighbor last year than any other country. Bilateral trade reached $2.13 billion, with Thai exports such as sugar, cement and oil accounting for 96 percent of the total, according to Thailand’s Commerce Ministry. Two-way shipments in the first nine months of this year dropped 26 percent.

2006 Coup

Thaksin, ousted in a 2006 coup, fled a two-year prison sentence for abuse of power last year and now lives in Dubai. Thailand will seek Thaksin’s extradition if he enters Cambodia, said Thani Thongphakdi, a spokesman with the Foreign Ministry. Cambodia says it won’t send Thaksin to Thailand because it considers the charges against him to be politically motivated.

Thaksin has orchestrated anti-government protests from abroad since he left the country. He was appointed an adviser because of his “economic skills” and “close friendship” with Hun Sen, Koy Kuong said last week.

Relations between the two countries have deteriorated since July 2008, when a Thai court ordered a pro-Thaksin government to withdraw support for Cambodia’s bid to list the Preah Vihear temple as a United Nations World Heritage site. Gun battles in the disputed area since then have killed at least six soldiers.

In a March parliamentary debate, Thai Foreign Minister Kasit Piromya called Hun Sen a word that the leader interpreted as “gangster.” The foreign ministry later called the word choice a “misunderstanding” and said it meant a “sportsmanlike gentlemen,” according to an April 1 statement.

In September, Thai protesters in the anti-Thaksin People’s Alliance for Democracy, which Kasit joined last year, rallied near the temple to try and expel Cambodians from 4.6 square kilometers of disputed land. The group urged Abhisit again today to kick out the Cambodians, according to leader Pipob Thongchai.

Beyond Caring

“There is not much left for Cambodia to gain in dealing with” Abhisit’s government, said Pavin Chachavalpongpun, a visiting research fellow at the Institute of Southeast Asian Studies in Singapore. “That is one of the reasons why Hun Sen has adopted this attitude of ‘I don’t care anymore.’”

Hun Sen sparked the latest round of diplomatic barbs in October when he compared Thaksin to Myanmar’s detained opposition leader Aung San Suu Kyi after arriving in Thailand for an Asean meeting. Abhisit said he was “misinformed.”

In 1962, the International Court of Justice ruled in a 9-3 vote that Cambodia had sovereignty over Preah Vihear. The court didn’t rule on the disputed land near the temple. The countries have yet to demarcate their 803-kilometer (499-mile) land border.

Thaksin or his allies have won Thailand’s past four elections. Since the coup, courts disbanded two parties linked to him, including the winner of the 2007 election, paving the way for Abhisit to form a coalition government. The Thaksin- linked Puea Thai party remains the largest in parliament.

Thaksin’s relationship with Hun Sen may “fuel nationalist flames,” said Chulalongkorn’s Thitinan. “If Thaksin’s not careful a lot of Thais will go along with this bandwagon because they feel that this is an insult on Thailand.”

To contact the reporters on this story: Daniel Ten Kate in Bangkok at dtenkate@bloomberg.net.

Last Updated: November 9, 2009 04:04 EST