(Recasts, adds new Thai PM comments)

By Yoko Kubota

TOKYO, Feb 6 (Reuters) - Thailand's prime minister sought to ease Japanese investors' worries on Friday, telling a business seminar that his country's flagging economy was "back on track" and its political system working again after recent turmoil.

"We now are back to having a government and a parliamentary system that works, that works for the people and are able to deal with matters of urgency, national urgency, in a swift and timely manner," Abhisit Vejjajiva told a news conference during his three-day visit to Japan, Thailand's biggest foreign investor.

Japan accounts for about 40 percent of total foreign direct investment in Thailand, Abhisit said. But its direct investment to the country fell nearly 20 percent to 71 billion baht ($2 billion) in the first 10 months of 2008 from a year ago.

Overall foreign direct investment dropped 12.5 percent, according to central bank data.

Japanese companies operating in Thailand believe business conditions in the country are the worst in 24 years, a survey by the Japanese Chamber of Commerce showed last month. It found business sentiment was weak in the manufacturing sector, especially among electronics and auto companies using Thailand as an export base. [ID:nBKK308452]

Abhisit, 44, faces mounting challenges at home, as Thailand struggles with falling demand for its exports amid a global slowdown, sagging confidence after months of political turmoil, and disrupted tourism and trade after a siege of Bangkok's airports in December.

STIMULUS PACKAGE

The government has put forward a 300 billion baht ($8.6 billion) stimulus package, which includes a mid-year fiscal budget of more than 100 billion baht, designed to nudge Thais to spend more to boost economic growth. [ID:nBKK64084]

In addition to the stimulus package, Thailand also plans to borrow $2 billion from agencies such as the World Bank to help its economy through the financial crisis. [ID:nBKK79547]

"We don't want to be caught off guard. It could be that as we enter the third or fourth quarter, there may be more surprises ... and we may find that the stimulus package is not sufficient," Abhisit said.

Abhisit also faces a rift between Bangkok's royalist military and business elite, who accuse former Prime Minister Thaksin Shinawatra, removed in 2006, of corruption, and rural voters who loved his populist policies.

His commitment to human rights is being questioned after the Thai military sent some 1,000 Rohingya boat people, Muslims fleeing oppression from Myanmar, back out to sea in rickety boats several weeks ago. More than 500 are feared to have drowned.

Many Rohingyas have accused the Thai army of abuse, and Abhisit has been questioned about his commitment to human rights and his debt to the army, who played a role in bringing him to power after the 2006 coup against Thaksin. [ID:nBKK31932]

"If there is evidence and if there are facts that emerged that there have been abuses by our officials, then they would have to be held accountable," Abhisit said. "But at the moment, I must say that the reports of abuse are solely based on accounts by these people, and nothing more."

Abhisit will meet Japanese Prime Minister Taro Aso later on Friday, where they are likely to discuss Japan's investment to Thailand and ASEAN issues. The Thai premier is set to leave Japan on Saturday.

(Editing by Jeremy Laurence) ($1=35.00 Baht)

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