Reuters

President Arroyo, under pressure from a bubbling graft scandal, said on Tuesday she would ask Congress to pass an anti-corruption reform act this year.

"On our part, we will hold officials accountable, if they are found to be corrupt after due process," Mrs. Arroyo told Cabinet members and lawmakers in a ceremony to sign this year's 1.2 trillion peso ($29 billion) budget.

"Let the chips fall where they may as investigations are concluded and friend and foe alike are brought to account for their actions in the proper courts."

Arroyo has faced calls to resign after witnesses in a Senate inquiry alleged a $329 million telecoms deal between the government and Chinese firm ZTE was overpriced by $130 million to fund kickbacks. Arroyo's husband was also named in the probe.

Mike Arroyo has denied any wrongdoing.

Analysts say the president, who has already survived three impeachment bids and at least three coup attempts, is likely to see out the remainder of her final term ending in mid-2010, because she has the support of the military and many Filipinos want stability.

But to appease critics and keep powerful Catholic bishops on side, Arroyo has lifted a gag order on government officials testifying at the Senate probe and said on Tuesday that projects and state procurement plans would be scrutinized.

Spending on infrastructure will rise 22 percent this year to 113 billion pesos as Arroyo seeks to upgrade the country's crumbling network of roads, bridges and underfunded hospitals and schools after years of belt-tightening.

Arroyo wants to balance the budget this year, ending a decade of deficits, but economists say that goal will be difficult to achieve without relying on proceeds from asset sales due to widespread tax evasion and official corruption.

Earlier this year, a former senior government official told a Senate probe that state contracts were usually overpriced by around 20 percent.

The Philippines was rated 131 out of 179 countries by corruption watchdog Transparency International in 2007, the same ranking as Libya and Burundi.