Arroyo cancels Philippine telecoms deal with China

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MANILA, Oct 3 (Reuters) Philippine President Gloria Macapagal Arroyo has told Chinese President Hu Jintao that her government had cancelled a 0-million telecoms deal with a Chinese firm because of a corruption scandal, a government spokesman said.

Presidential spokesman Ignacio Bunye said Arroyo discussed the cancellation of the deal with Chinese telecom firm ZTE Corp in a bilateral meeting with Hu in Shanghai on Tuesday, where Arroyo was a guest at the opening of the 2007 Special Olympics.

The Philippines' election chief, a key ally of Arroyo, resigned on Monday following allegations he offered bribes to secure a contract for ZTE to set up a broadband network linking Philippine government agencies across the archipelago.

The poll chief's resignation, which came just before he was to face impeachment proceedings in Congress, was widely viewed as an attempt to protect Arroyo.

''The president explained the difficult decision not to continue with the NBN (national broadband network) contract and the president counted on the good relations between our two countries for understanding,'' Bunye said in a statement.

''We are gratified that President Hu offered understanding when he said that our relationship is in very good shape and the Philippines has been a great ally,'' he added.

The telecoms contract that ZTE bagged was tied to concessional loans the Chinese government would provide the Philippines to bankroll the project.

More than a week ago, Arroyo suspended the telecoms deal after her husband was named in a senate inquiry into allegations of kickbacks in the project and following a growing rift in her ruling coalition.

The bribery scandal has been an irritant for Arroyo since July, but she has not been directly implicated.

REUTERS SBA BST0758

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