MANILA, July 11 (Reuters) - Philippine President Benigno Aquino on Friday rejected a resignation offer from his budget secretary after the top court declared the government's discretionary fund illegal in the biggest test yet for its battle against graft.
Aquino, the only son of democracy icon and former president Corazon Aquino, took power in 2010 on the promise of transparency, good governance and battling corruption to lift the Philippines from poverty.
But he has struggled to shed the country's image as one of the most corrupt in Asia as he continues to defend his allies while chasing down politicians, bureaucrats and generals associated with the past administration.
On Thursday, Florencio "Butch" Abad handed his resignation letter to Aquino to save the government from growing criticism over the use of 150 billion pesos ($3.45 billion) in discretionary funds from 2011 to 2013.
"I have decided not to accept his resignation," Aquino told a Cabinet meeting during the annual budget presentation. "To accept his resignation is to assign to him a wrong and I cannot accept the notion that doing right by our people is a wrong."
Aquino has yet to comment on the court's decision, but his spokesmen defended him, saying the president had done nothing wrong and everything was done in good faith. His popularity rating is expected to plunge over this issue.
Aquino faces the toughest political test in his four years in office, throwing into doubt his campaign promise to rid government of corruption.
The resignation came a week after the top court unanimously declared as unconstitutional Aquino's move to impound executive funds and their distribution to lawmakers. The government says the funds were spent to stimulate the economy.
Abad, the president's campaign manager and closest adviser, was facing corruption charges for setting up the president's discretionary fund, called the Disbursement Acceleration Program (DAP), in 2011 to fund lawmakers' projects.
This week, a former congressman filed a motion to impeach the president before the lower house of Congress, accusing him of betrayal of public trust, bribery and culpable violation of the constitution.
Critics say the government used the fund as a tool to gain control of Congress, accusing lawmakers of misusing some of the money. Three opposition senators have been detained and face plunder charges in the anti-graft court.
On Friday, the court entered a not guilty plea in the arraignment of Juan Ponce Enrile, a 90-year-old senator and hero of the 1986 People Power uprising that toppled dictator Ferdinand Marcos.
He is under arrest at a police hospital, because of his old age and poor health. Two other senators, Ramon "Bong" Revilla and Jose "Jinggoy" Estrada, are being detained at a police camp while on trial for corruption. ($1=43.4800 Philippine pesos)
(Reporting by Manuel Mogato; Editing by Clarence Fernandez)