Gloria Macapagal Arroyo, the Philippines President, has ordered the suspension of a USD330 Mln telecommunications deal with a Chinese company, ZTE Corporation, which is at the centre of a probe into corruption allegations by the Philippines Senate that may constitute a new political challenge to her six-year-old presidency. It was reported that at the time of Arroyo’s announcement, some rebel military officers were using the scandal to recruit troops for a fresh plot to overthrow the government.

Hermogenes Esperon, Chief of Staff of the Armed Forces of Philippines, said that six young military officers had been under surveillance on suspicion of involvement in the conspiracy. Peter Favil, Philippines Trade and Industry Minister, said on Saturday that Mrs Macapagal had instructed him to convey to the Chinese government her desire to suspend the deal. ZTE is China's second largest telecommunications equipment manufacturer; China is prepared to lend USD330 Mln to the Philippines to finance the project.

Jose "Joey" De Venecia III, son of the speaker of the House of Representatives, accused a top official of receiving bribes from the Chinese company to lobby for the deal. De Venecia's company also bid for the contract. He also told a Senate panel that the president's husband, Jose Miguel Arroyo, had tried to force him to withdraw his bid for the project. Officials hoped that Mrs Macapagal's decision to suspend the project will prompt law makers to rethink plans to hold more hearings on the telecommunications deal.

The Senate will hold another hearing on Wednesday and has invited the former Chief of the Economic Planning Agency, Romulo Neri, to attend. Mr Neri, who evaluated the broadband project, is asked to respond to reports that he was offered a bribe to approve the project. He has so far refused to confirm or deny the reports, but he has said he will talk about it at an appropriate occasion. The suspension of the broadband deal constitutes a turnaround in Mrs Macapagal's position. She claimed last week that her government respects contracts and agreements through the legitimate process.