Arroyo suspends telecoms deal with Chinese firm

MANILA, Sep 22 (Reuters) Philippine President Gloria Macapagal Arroyo has suspended a 330 million dollars telecommunications deal with a Chinese firm after it triggered a kickbacks scandal that could rattle her government.

''I think this is the best thing to do now,'' Trade Secretary Peter Favila told reporters today. ''Those were her instructions. We were just implementing her orders.

Favila said Arroyo made her decision after discussions with some cabinet members but he declined to give further details.

''Whatever reasons behind that, that's an executive privilege.'' The suspension of the agreement with China's ZTE Corp to build a broadband network linking state agencies comes two days after Arroyo's cabinet defended the contract at a senate inquiry into allegations of kickbacks in the project.

The Supreme Court had earlier stopped the implementation of the deal after it received two separate petitions to scrap the project.

Political analysts have said the scandal could affect the stability of Arroyo's government because her husband was named in the senate inquiry and because it could lead to a split with a major coalition partner in Congress.

Favila said he had not been in contact with ZTE officials, but he had informed China's commerce ministry of the suspension.

''Minister Bo Xilai said his government understands and respects the decision of President Arroyo and will continue to support her and her programmes,'' presidential spokesman, Ignacio Bunye, said in a statement today.

On Tuesday, Jose de Venecia III, the head of a company that lost out on the contract, told the senate it was over-priced by at least 130 million dollars to allow kickbacks to senior government officials.

He also said Arroyo's husband had told him to ''back off'' from the deal, signed in April during the president's visit to China's southern province of Hainan.

De Venecia is the son of House of Representatives Speaker Jose de Venecia, head of the dominant Lakas party, which forms the ruling coalition along with Arroyo's smaller Kampi party.

Analysts have said a split between Arroyo and de Venecia could open the way for an impeachment motion in the lower house of Congress against the president, who has failed to shake allegations she cheated in the 2004 elections.

Reuters SKB DS1315