CORRECTED - Philippines' Arroyo picks chief justice

By Rosemarie Francisco and Manny Mogato

MANILA (Reuters) - Outgoing Philippine President Gloria Macapagal Arroyo appointed an ally as Supreme Court chief justice on Wednesday, a move critics said was aimed at shielding her from graft investigations promised by her likely successor.

Senator Benigno Aquino, son of two revered pro-democracy icons who challenged the kleptocratic regime of Ferdinand Marcos, is far ahead in unofficial vote tallies after national elections on Monday that went far more smoothly than markets had feared.

Aquino, who shares the same reputation for probity as his mother Corazon who died last August, campaigned on a platform of cleaning up politics and cracking down on corruption, tax evasion and smuggling. He looks certain to become the next president.

Markets want to see Aquino quickly get to grips with the ballooning budget deficit, which he plans to bring under control by slashing government expenditure and improving tax collection.

Ordinary Filipinos want to see swift action to clean up politics and end a pervasive culture of corruption that analysts say has played a key role in stifling foreign investment.

Aquino sees the issues of corruption and budget prudence as linked -- his fiscal strategy involves eliminating pork-barrel spending and pursuing those who avoid paying taxes and duties, which he hopes will remove any need to impose higher tax rates.

"We will start prosecuting the evaders. We will start picking the low-lying fruit, the easiest to pick," Aquino told Reuters in an interview on Tuesday. "Before we start imposing new taxes, we should be collecting the taxes that are already there."

During his campaign, Aquino also vowed to investigate the highly unpopular Arroyo and her scandal-tainted administration.

ARROYO NOT GOING QUIETLY

The outgoing president still plans to be a political force. She has won a seat in Congress in the election and the Philippine media says she hopes to become house speaker and use this position to challenge the power of the presidency.

Arroyo has said she will ensure a smooth transition before her term ends on June 30. But her appointment of Renato Corona to head the Supreme Court sparked renewed accusations that she is trying to put allies in key positions before leaving office.

Corona was her chief of staff when Arroyo was vice president and also for a year after she became president in 2001.

Of 15 Supreme Court judges, 14 will be Arroyo appointees when Corona replaces current Chief Justice Reynato Puno, who retires on May 17, with one position remaining vacant.

When the decision to allow Arroyo to appoint a chief justice was announced, after judges ruled it did not violate an election ban on political appointments, it sparked protests that she was trying to protect herself from investigation. [ID:nSGE62I0CJ]

"Because she will still be in public office, because she will be held to account, at worst there is some measure of confidence that the decision that will be made in her cases will not be outrightly against her," said Marvic Leonen, dean of the College of Law at the University of the Philippines.

Aquino says he will set up a committee that will investigate graft accusations against the Arroyo regime, including scandals over the diversion of funds for fertiliser.

"We need to have closure on all items like the fertiliser scam," he told Reuters. "We lost 720 million pesos ($16 million). Who is responsible for this? ... There is no reason why you cannot expedite the solution of these cases."

He also wants legal reform. "There is a necessity also for reforming our judicial system so we are not locked in a battle in the courts in the next two decades," Aquino said.

Election commission Comelec has stopped updating its unofficial tallies, having said Aquino had more than 40 percent of votes, leading former president Joseph Estrada by 15 percentage points, with nearly 80 percent of ballots counted.

Estrada has said he won't concede based on unofficial results but does not plan any protest of the outcome.

In his interview with Reuters, Aquino dismissed the prospect of Arroyo becoming speaker in the lower house, saying it was unheard of for an opposition candidate to secure the position.

But Arroyo's brother-in-law said she stands a good chance.

"If you look at the numbers, many of those who won (seats in Congress) are loyal to her," Ignacio Arroyo Jr. told Reuters. "If she will run, I will vote for her."

($1=44.99 Philippine Peso)

(Additional reporting by Manolo Serapio Jr.; Writing by John Mair; Editing by Andrew Marshall and Paul Tait)