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Secretary Cohen's Remarks at the Navy Flag Officers Conference

Presenter: Secretary of Defense William S. Cohen
January 23, 1998

Secretary Cohen: ...It was a fascinating trip. We went to seven countries in 12 days, actually 10 days on the ground, one day of traveling each way. I must say, the question is not where my body is, but where my mind is. It may be (inaudible) in terms of the whirlwind aspects of the trip, but we went directly from Washington, flew non-stop with two air-to-air refuelings to Malaysia.

We touched down in Malaysia, went directly into the Pacific Dialog Banquet that evening, then met with (inaudible) the United States in terms of his assessment as to why there seems to be such a capital flight coming out of that region of Southeast Asia. He gave a presentation of a review of what took place during our trip, and then (inaudible) specific issues. But he gave his presentation which I thought was inflationary. If any of you have read about (inaudible), he's not necessarily (inaudible). He has to mute much of his criticism, but nevertheless, it does come through from time to time (inaudible) from his colonial days in which he spent a very (inaudible) version of what took place in his country. So that's deep seated and it's real.

On the other hand, he has taken that country in a very short period of time (inaudible) in Malaysia, and you see a remarkable country that's developing. Suddenly he is in the final stages of his leadership, although he seems quite vigorous to me. He's about 74, 75 years old, but he appears to be in very good health. (inaudible), and he can't quite figure out why (inaudible).

What was interesting about his presentation was he was very low key, very muted, self deprecation (inaudible), and he said something to the fact that you know, we're growing at eight percent a year. Unfortunately, we're going to be reduced to four percent a year. Most countries would be happy with four percent a year, but (inaudible) in half. We're going to have high unemployment; we're going to send roughly one billion foreign workers back -- he didn't specify to where, but Indonesia probably is one of the countries (inaudible). And essentially a very downbeat message.

At the very end, he said (inaudible) a strong people and we'll come back. If you had read the paper the next day, those being there witnessing that particular speech, you would have said what a great speech he gave. It says (inaudible) says Malaysia will overcome. The whole message was very negative in tone and content. He essentially opened up by saying, "I can't tell you what I think because every time I tell you what I think, the stock market goes down." (Laughter) By saying that, of course, he was sending a subliminal message (inaudible) that I really still believe the same things I said before, I just can't tell you. And by telling you I can't tell you, you got the message, and (inaudible) Deputy Prime Minister Ibraham... restore Malaysia into a (inaudible) place.

It's going to be difficult. They're going through some very hard times, and they're going to, in fact, (inaudible) pushing some of those workers back into the other countries (inaudible) and others, that's going to cause even more turmoil in the region.

I left from Malaysia, went directly to (inaudible) Indonesia, and that was President Soeharto. I guess Admiral Prueher (inaudible). He was along on part of the trip. We went up into China.

We went to Indonesia. I think most people in this country have no idea of where Indonesia is. Number two, fail to realize that it has about 205, 210 million people, nearly the population of the United States. And (inaudible).. to draw the connection between the economy and security issues and Secretary Summers had just preceded me by one day. The President had indicated he was prepared to sign a pledge about the reforms that would be necessary in Indonesia -- namely controlling their monetary system, restructuring their banking industry as such, becoming much more open and accountable and open to foreign competition, as such, and generally having the kind of oversight and security that one would require of a modern society and to eliminate "cronyism, corruption, and family ties", all of which is going to be very hard for him to swallow because, of course, part of the criticism has been that too much business has been going to his family members, and he has now signed a pledge that he would abide by the IMF standards.

That's a double edged sword for us. Because to the extent that we are insisting that he comply with IMF standards, to the extent that there is not a recovery and the kind of pressures that are going to be exerted upon his population -- more layoffs, more unemployment, more potential riots in the streets -- the sword could then come and point to us saying we're the ones who forced this upon him.

So it's something we have to watch very carefully, and it's a real balancing act that we have, saying you've got to restructure, you've really got to get rid of the corruption and the family ties, as such, at a time when it still might not be good enough.

There was a question raised by the people that I talked to as to whether or not there would be a line of succession. There is no visible successor to Soeharto. He has made sure that there is no one who is going to follow him who's identifiable, so it creates a real problem. Now the international business community is saying who's next?

He looked in reasonably good health, I might say. He expressed to me his frustration over CNN. The press is not here, right? (Laughter) Anyway, CNN was the one he reported to saying at first they reported he had died; then they reported that he had suffered a severe stroke; then they reported that he was in failing health and unable to lead his country -- all of which he felt really contributed to undermining his country.

So when I saw him he looked in reasonably good health, quite fit. Sat there for an hour without any discomfort. I saw no signs that he was in any way incapacitated, and made the pledge to me that he was going to carry through with the IMF reforms. But the next question is who will he pick for his vice president, and that person has to be probably acceptable to his military; and secondly, acceptable at the same time to the international financial community. A name was floated shortly after I arrived.

By the way, everywhere I went, the economy came up that day. (Laughter) The stock market came up, the currency was up, so I took full credit. Of course the minute I left, it went down.

But in any event, one of the questions raised by a number of people, who is he going to pick for his vice president will be particularly important. The name Habibi came up. One of his friends, and someone who's been associated with the kind of cronyism that has really marked Indonesia for so many years. Right away it went down again. So if you follow this morning's news, they're still in deep trouble.

That's a concern to everybody in the region. What they have finally understood -- maybe they always have -- these countries are all interrelated. Malaysia can get its house in order; Thailand conceivably could get its house in order, I'll talk about that in a moment; Singapore is still pretty strong. But what happens in Indonesia can overwhelm all of them. If that country goes down and they start having the kind of migrant, the flows of refugees going out to other countries, and you have the riots that are sparked and the police that are cracking down, that can spread throughout the entire region, in spite of what all of the others are doing to restore a sense of confidence in their own countries. So everyone is finally looking and saying what happens in Indonesia is going to be critical. Right now it's very touchy.

What we have to do and try and persuade the international community is that they're committed to getting back on track. It's going to take some time, but they need some sort of reassurance that if they take these steps it will be rewarded. Because if they take the steps and all they have is more unemployment, more people who are laid off by the hundreds of thousands, and they have no social safety network beneath them, they have no net there, they have no unemployment compensation, they have none of the kind of safety nets that we have in this country and other industrialized countries have, so they have a major problem, how they're going to deal with it. So if you take the steps and you still fail, then you've got chaos that could prevail there.

That's a concern in Singapore, a concern in Malaysia, a concern in Thailand, a concern even in Japan and China which I'll get to in a moment.

By the way, General Jones and I had the pleasure of going out to watch their special forces train in Indonesia. I don't know if any of you have had that experience, but it's pretty impressive. They had 400-500 young men and a small cadre of women in their special forces. These folks were in great shape. They were not big, 250 pound bruisers, but pretty lean, mean, 130-140 pounds, and they were breaking cement blocks with their heads, their arms. They had iron bars they were snapping over their knees, etc.

But the most impressive thing I saw were some of them standing, and they were showing the power of the mind in terms of controlling the body, and they're fighting in jungle warfare scenarios. A senior officer went by to one of the young men. He smacked him on the chest, and a bat came out of his mouth. He hit him again, and another bat came out. He had five bats inside his throat. It caught all of our attention, by the way. (Laughter) Let me tell you, that's... General Jones, I was telling them about your bat trick.

It got our attention. Then, they had several of the young men were covered with scorpions, crawling all over their faces and being given commands by the commanding officer, and they were just standing absolutely frozen at attention with scorpions going in their ear, down their throats. Then they put them in kind of a snake pit.

It was very impressive to see the power of the mind to control the body in those circumstances. We could learn some lessons from their martial arts, I can assure you. They have a lot to learn from us, but in terms of fighting under jungle conditions, there's something to be said for that kind of discipline and that kind of control.

In any event, we left Indonesia, went on to Singapore. There I gave a speech to a large audience. What we learned when I arrived there is the Deputy Prime Minister, of course, announced that they are building a new pier. And guess what, Navy, they are going to welcome our aircraft carriers in the future. I did not anticipate that that would take place, there would be a public announcement at that time, but it seemed to coincide with the announcement with the Philippines that we had just reached an agreement as far as the stationing -- we call it stationing of our forces, but actually our visiting of forces, as such, on station there. But we reached an agreement with the Philippines which is very positive, and simultaneously the Singaporians announced that we were going to have access to their new pier with our aircraft carriers and all ships -- not just carriers, but subs and whatever else we wanted to bring in.

That was very good news there, and it sent a signal that they want us there. This is something that is a bit of a change over the last few years where the question about could we have a presence and what would that do to the local population. I'll get to the reason why I think that's taking place in just a moment.

But it was a good meeting in Singapore with the caveat that they are concerned about Indonesia. They are truly worried about what is taking place and what that means for all of their economies. You can see this in the international marketplace, where if one country starts to have problems, suddenly there's a collective response -- everybody out, they're all going to hell in a hand basket. Let's get our money out and put it elsewhere. Suddenly, they all face this immediate collapse, even though they have very strong underlying economies in terms of work ethic and product and so forth. So it can just be a sort of a herd mentality, and suddenly there's a shift and the bulls start running the other way, the bears start coming in, and they're under.

So Singapore looks pretty good, looks very strong, but they're concerned about what's going to take place.

I left there, went to Thailand. Thailand, they've got new leadership. A brilliant young Foreign Minister who studied, a graduate of Harvard. Highly educated. And their new Prime Minister, someone who has the reputation of being the poorest man in Thailand. I said we had something in common. When I was in the Senate I was regarded as the poorest member of the United States Senate, so maybe we had a basis for communicating in terms of poverty being some kind of badge of honesty. But in Thailand that's true. They've have such a system, again, of cronyism and corruption. They now have a new Prime Minister who has a reputation for total integrity and honesty. So they really are determined to restructure their system in a way that will put them back on a positive track.

The problem, F-18s. They want to know is there anybody out there we can sell some F-18s to because they can't pay for them. They don't have the resources now. We don't have a third country client. So we've got to work, and I did indicate to them we would work with the contractors to see if there are ways in which we could stretch out the contract, perhaps have some kind of method of payment that would take into account their particular problem right now, but that's going to be a problem for us as far as the F-18s.

I met with the King, and he's a pretty impressive man. I don't know if any of you are familiar with him, but he was actually born in the United States in Boston. His father was a doctor, he was a student, I think studying at Harvard at that time. He was born in the United States. He's a great jazz musician, composer. Still continues to write, and is basically revered in that country. He, of course, was also concerned about F-18s. At a time when his country looks like it might be sinking, they're still buying F-18s. The signal that's being sent to their people is the wrong one, and he's looking for some other type of assistance to build some indigenous economies -- fertilizer plants, a fertilizer industry. But we talked about ways in which we can be helpful.

But it's starting to become clear -- certainly to me, but hopefully to members of Congress as well -- that what takes place with the Asian flu is going to have an affect over here. We may not get pneumonia, but we are going to have problems over here in terms of our sales. It's going to be very hard to sustain the sales that have been made, the contracts that are due, and also some of the programs we have.

I talked to the Thais also, they were quite upset about the IMET program. I mentioned this in Indonesia, as a matter of fact. Expanded IMET is not something they are fond of. But I also made an approach to them saying they ought to take it in Indonesia as well. Even though they can't get the full IMET, take the expanded, which is really a contradiction in terms. It's a contraction, but we call it expanded IMET. So the IMET program is important in Thailand as well, and they want to continue that. We've just got to figure out a way that we can continue it given their current economic problems.

On to China. There we had a number of first. I was the first Secretary of Defense to sign a maritime safety agreement. That's an important document and an important step that hopefully will reduce the chance for conflict in the future as far as operating in and around the seas around China.

It was symbolically important as far as the first step that we're taking with them, the military-to-military contacts that we keep building upon. Admiral Prueher has had a lot of contact over there and he's highly respected, and I made sure to point out that he is my executive agent for implementing this agreement, to make sure that he is the one that they start dealing with to actually implement the details of the agreement.

I think I was the first Secretary of Defense to be allowed to enter their Air Defense Control Center in Beijing. It was a center that they didn't even disclose the location of, I'm not sure I know where it is. They took us around a little bit. But found it was a very unobtrusive building. You would not pick it out of a lineup, so to speak. It was just an ordinary looking building, but they had about five stories. Went inside, got sort of a rundown on how they control their civilian aircraft coming into Beijing and the surrounding areas, and their military. Some of it was '50s and '60s technology. I'm not an expert in that field, but they seemed to have very highly educated young officers who were giving the briefings to us. They will upgrade their equipment over the years, but they seem pretty competent to me. I know that Admiral Prueher probably can give you a better rundown on what he saw at that time.

So we were the first ones to be allowed into that Air Defense Center. That's a good sign, as well, that they're opening up a little bit at least to try to become more transparent in their dealings with us.

I then went to address the PLA's Military Academy of Sciences. About the same number of people who are here, all dressed up in their army uniforms, as such, but they're academicians. I gave, unfortunately, about a 45 minute presentation because it had to be translated sequentially. But they sat, they listened, and they asked a lot of good questions. But it was the first time to have an opportunity like that.

Then of course I had a meeting with their top military man, the Defense Minister Chi, then met with President Jiang Zemin. That was a very positive meeting because I got a couple of commitments.

You are concerned, I am concerned, about the sale of the C-801, 802s, the anti-ship cruise missiles going into Iran. He reaffirmed at that time that they will make no transfers. Whatever they've agreed to do in the past they will stop. No nuclear technology going to Iran, no more cruise missiles going to Tehran. It was a little bit ambiguous when he was here and made that same pledge to President Clinton. Here I tried to get more clarification, and they do see ambiguity, and they indicated very clearly no more shipments of the anti-ship cruise missiles. The ones they have don't have the over-the-horizon capability. They are not going to provide the technology, which also is another point I should make.

They are not going to provide Iran either with the missiles or with the indigenous capability of upgrading the anti-ship cruise missiles to give it an over-the-horizon capability, so that was a very important statement coming out of them.

We had, as you probably were aware of, we had also sent a C-17 over filled with medical supplies and other types of equipment, to help provide some relief to the earthquake victims, and that's a major step, I must tell you. For those of you who have dealt with the Chinese over the years, that is not something they accept eagerly. They, in the past, might have seen that as a sign of weakness and they had to depend upon somebody outside and that's an injury to their pride. They not only accepted it, but then I offered to send another C-17 over with additional tents and blankets because there were sub-zero temperatures up in the region where they were suffering, some I think about 10,000 people. They accepted that as well. So we had two back to back shipments, and more importantly, they had the cameras there, and pledged to have the cameras to film the C-17 coming in and the equipment being unloaded so that it would get wide distribution throughout China. Again, I think that all bodes pretty well for our relationship in the future.

One personal note. I had requested earlier really to appeal to Jiang Zemin's pride in the fact that he is a master at calligraphy. He drew one of those calligraphies for me at that time. He took a great deal of pride in doing it. But what I noticed is how good his hand was. He said that his father -- he owed all of that to his father who when he was a very young boy, made him practice his strokes even in the dead of winter when it was really cold out, to make sure he had a steady hand. And I think he's about 74, 75 years old, he had a very steady hand in going through that drawing.

I left China on a very positive note and went to Japan. I must say that the Chinese, by the way, as you know, have been concerned about our U.S./Japan Defense Guidelines, but they weren't so concerned or didn't express that concern at a level which is something we would have anticipated, a very high pitched, angry level. That wasn't there. They said we're concerned about it. I explained what we had in mind, keeping it roughly ambiguous in terms of how it pertained to Taiwan, and they did not really challenge it. So again, a real change in the temperament of the Chinese because they want to do business with us, from what I can see at this point. Only because we are seen not as sinking, but as rising. That makes a big difference in terms of how we are appreciated over there, which I'll talk about in a moment.

Finally, I went on to Japan. Japan also is in trouble. It's not because they don't have a lot of reserves. They have a lot of foreign reserves that they've accumulated over the years, but they have no growth to speak of. They've had roughly one percent growth for the past four years. The danger is they're going to try to simply export their way out of their economic difficulties. So if you have Japan trying to export its way by dumping their goods in our country, plus you've got Malaysia, Indonesia, Thailand, all the others. Guess what's going to happen over here? Congress would go back into session next week and they could say uh uh, we're going to put a wall up, and we're not going to let all those groups come into here. So you could have a backlash, you could have a real global recession as a result of that.

So what I tried to do with Hashimoto, whose popularity is hovering at the heights of around 25 percent right now, he is in deep trouble politically in his own country because of the lack of growth in the economy, and he's being blamed for that. I've tried to encourage him, again not being an expert in economic matters, but to encourage him to lead an effort to create a domestic demand-led type of economic reform without getting into specifics of tax cuts and how much, but say that the message is don't try to export your way out of this because it's going to create real problems.

But we had a good meeting, a joint meeting with their Foreign Minister and Defense Minister.

I should tell you after we had that meeting in which I went through all of the issues dealing with the guidelines, dealing with [Marine Corps Air Station] Futenma, dealing with the terrible thing we have at [Naval Air Facility] Atsugi as far as the air quality is concerned, urging them to move quickly and not simply delay this into some future time. I then had a separate meeting with the Defense Minister. It's kind of the protocol that you have a joint meeting and then you have a separate meeting. It went on until quite late. At the end of that meeting I made a presentation to the Defense Minister Kyuma. I gave him something that my son, who happened to be in Tokyo at the same time, said you're giving him a what? I said I'm giving him a basketball. It's a basketball signed by Michael Jordan. He said, "You're giving him a ball signed by Michael Jordan?" It was the biggest gift I gave the entire trip, to hand over a Michael Jordan basketball to the Defense Minister. It goes a long way. I'm not sure how long he'll still be a Defense Minister, but it built a lot of good will for the time that he is there. A very good man.

So I left Japan, again, on a pretty good note in terms of their commitment, and then ended up in South Korea yesterday. I went up to the DMZ, and tried to point out to the press that was traveling with us -- we had ten members of the press -- about the importance of landmines. I think we have gotten a terrible rap on that issue, and I had to commend President Clinton for withstanding the kind of heat that he had to take politically, because there is a tremendous rush for everybody to sign that particular treaty. He resisted that, number one, because of the Korean situation; and number two, because our anti-tank mines also are precluded under the Ottawa Treaty.

But I took the press up to the DMZ and pointed out why we had to have these and why they were important and what it meant to the security of the young folks that we've got up there defending our interests. We'll continue to try to point that out, but it's critically important in that region. The whole issue, by the way, of the Ottawa Treaty, is going to affect all of us -- NATO, Japan, all of our countries who are friendly with us where we have either storage or transition of our APLs.

Right now, as you're probably aware, there's an effort made to say you must remove all of the APLs between now and the year 2003. That creates a real problem for us, because President Clinton has pledged to get rid of the APLs that we have by the year 2003, but we ought to have that opportunity between now and the year 2003 to continue to try to provide the kind of force protection that's critical for our forces. There's a movement underway, be it in Norway, Europe, and Japan, looking at it very legalistically, saying they cannot allow either the storage or the transit of any of the APLs even between now and the year 2003. So it's a real issue that I have tried to point out to them, that this is something they've got to address, and if they don't address it, it's going to compromise the security of our folks and it may lead to other types of ramifications.

In any event, after the DMZ visit, I went and saw some combined arms exercises. Pretty impressive up there. The temperature was cold, but not as cold as Beijing. We came from 93 degree temperature in Singapore/Indonesia to Beijing where the temperature was down about 20 below zero with the wind chill factor. So it's lucky I'm still here talking to you in any event.

But up on the DMZ it was pretty cold. They were carrying out their live fire exercises and really doing a job well done. Very impressive also to the media up there.

I then met with their leadership, their current President who is on his way out, and the new President who just got elected and will be sworn in, I think, the end of February. To try to point out, again, we need to have them maintain the same level of host nation support. That even though they're experiencing tremendous difficulties right now, and you've got almost a 50 percent decline in the value of the won versus the U.S. dollar, so they've got real problems. That if they were to cut host nation support, it sends just the wrong signal to the United States. The Congress will say wait a minute, if you're not concerned about your own security, why should we be more concerned than you are? It will create a real problem on Capital Hill for me to deal with in terms of saying well we have to compensate for their poor economy right now by adding more to our budget. That won't happen, and so I tried to make it clear we're willing to work with the South Koreans, but they've got to maintain the same essential level of host nation support. We'll deal with some of the other issues.

As far as their acquisitions are concerned, I encourage them to maintain their acquisition programs so they remain "interoperable with ours". Without getting into the whole business of whether they can buy Russian types of SAMs or Chinese artillery or whatever it is, we want them to buy -- if they're going to buy anything -- to continue to buy U.S. products so we have that interoperable capability.

That's around the horn in about, well it took me 15-20 minutes to get you around there. I thought I'd just maybe sum up a few things and tell you where we are, where we're going with the Navy specifically.

The QDR, Admiral Johnson mentioned that. That is essential. When we developed that whole strategy we said we are going to be forward deployed, we're going to shape the environment. That really is key as far as the Navy is concerned. You know there's kind of a raging debate on Capital Hill, deep strike capabilities. We have more B-2 bombers. The Navy's much more expensive. It takes a lot to put a carrier battle group out there. We could have the same fire power or greater fire power as far as stopping the initial stages by having just B-2s fly out of CONUS.

That debate is going to continue, but what it misses... There's no question about the capability of a B-2 to deliver some pretty heavy ordnance. What it misses is the key to our strategy of shaping, responding, preparing. The shaping part is the most critical.

When we are forward deployed, and I forgot to mention this. I had a terrific time on the INDY. Went out and spoke to the troops. Bob Natter is doing a terrific job. The folks on board the INDEPENDENCE were just fired up. They were ready to go, they were anxious to get moving, and morale couldn't have been higher. Admiral Natter was there, and he was just doing a great job.

But the shaping part. When the Navy is out there and when you're forward deployed, and people see you and feel you, you're not only great warriors. As I liked to tell the troops, they're great diplomats as well. When other countries see the quality of the people that we have, and they see how well led they are, and they see their competence and their pride and their patriotism and they interact with them, that sends a very strong message to all of our allies that we're the ones they want to be on the side of. It also sends the same message to your potential adversaries, that we're not somebody to mess with.

So shaping the environment is key to our strategy. That's not going to change. The QDR, whatever its deficiencies, and there are a lot of critics that you can find about the QDR. Whatever the deficiencies, the strategy is going to remain the same for the indefinite future -- shaping the environment, being able to respond to the whole range of the type of crises and NEOs all the way up to Saddam Hussein or deterring a nuclear conflict here. We still will have to do that today, in the year 2010, in the year 2020.

The NDP, the National Defense Panel, you probably read that. It appears, at least from the reporting, that it's critical of the QDR, but you've got to read it closely. What they did not say, as reported as having been said, they were not saying we shouldn't have a two-MRC capability. I asked them that question, the panel. I said which capability should we give up? How about pulling the troops out of Korea? Oh, no. Can't do that. How about just pulling all of our forces out of the Gulf? No, we don't want to do that, either. So when you talk about the criticism that we are too narrowly focused through the QDR upon a two-MRC capability, I said well, give me an option. What do we have in the way of an option? Korea will ultimately resolve itself sometime in the future. But we don't know if it will be tomorrow or if it will be ten years from now. So you can't base your strategy for acquisition upon something you can't predict at this point. So for the time being, near term, mid term, we still have to have a concern about what takes place in Korea.

This is another key point that I made in Korea. Even assuming the two Koreas are finally united, we still have to maintain a presence over there. Now the question will come up, however, and something I wish all of you working through the various channels that you have available to start thinking, what do we do following a unification of the Koreas? How much of a force will we be able to maintain there? If we can't maintain the same level in Korea, what about Japan? How will the Okinawans actually deal with this issue? Will the Japanese government be able to override the concerns in Okinawa for the indefinite future? These are issues we ought to start planning for now in terms of what are the options. We shouldn't base our 100,000 man/woman presence in the Pacific simply upon Korea, so we've got to start thinking about the future in terms of options at least, if we're not allowed to keep that kind of a commitment in Korea.

What we did do is agree, however, with the new President-elect. Even though there is some question about whether he is as committed as the previous administration to the long term commitment of the United States, he said he expects when the two Koreas are united, to have the United States present there for the indefinite future. But that can all change. It can all change tomorrow, so we've got to have some options that I hope we can start looking at.

A couple of other quick issues. The Defense Reform Initiative, DRI. We've gone from the QDR to the DRI, but we're changing the way we do business in the Pentagon. The one thing I wanted to indicate, just as I've asked through the QDR to make a number of cuts in the support elements of our forces as opposed to the combat side, I wanted to indicate that we're going to take cuts in the Pentagon as well. I am going to eliminate approximately one-third of staff in the Pentagon on the OSD side of things, and that's over an 18 month period. I think that's a pretty good signal to send to everybody else, that we're downsizing as well. We're going to be engaging in this revolution in business affairs. We're learning from the corporate sector how to learn from them in terms of practices. We're going to be a paperless society.

I don't know if you've seen some of the exhibits that we've given, but some 70,000 pages of regulations, of financial regulations, those are now all on one CD ROM. By July of this year they won't even be on the CD ROM, they'll be on the Internet. By the year 2000 we will be doing the bulk of our contracting strictly on the Internet, so we're going to be saving millions of dollars.

We're changing the way we have reimbursement for travel. I know it's something of concern to you. We waste a lot of money in our travel regulations by changing the way in which we conduct that. We'll probably save about $600 million on an annual basis. So we've got some real savings that we're putting into effect through this Defense Reform Initiative.

Let me talk about Navy issues, because I'm told Admiral Johnson said you might want to ask some questions. Just a couple of quick issues on the Navy.

F-18E/F. It's going to come under scrutiny and criticism in terms of the GAO. Congress itself will be looking for ways in which either to delay, defer, or cancel.

This is a tough issue to deal with because you have so many critics saying we can't afford all the TacAir. But as I looked at this issue I said we really need the F-18E/F model as a hedge against the Joint Strike Fighter. We don't want to be in a situation where you have all of your marbles in one basket, as such, and suddenly you've got an aircraft that either doesn't measure up to performance or that you can't afford. So I needed that kind of balance. The Navy has to have the E/F model, but we're going to do it in a way which gives me some leverage against the contractors where the Joint Strike Fighter is concerned. But that's bound to be a contentious issue.

On training. Sex in the military. You probably read about the Kassebaum Baker report, the DACOWITS report recently came out. It's going to be an area of great contention. But what I've done is asked all the service chiefs to come back to me in 90 days and say what do you think?

There are things that we could be doing that we're not doing. Do you think we can either afford or should have segregated housing? What about the training units? All of the issues raised in that panel will now be reviewed by the service chiefs and come back with their recommendations.

OpTempo/PersTempo. That's the biggest problem that we're all facing. The Air Force has got a big problem, the Navy will have a problem as well. We're trying to address that as far as putting less stress on those units which are really being called upon the most.

Conclusion. The Navy's doing exceptionally well. I've been really impressed with the leadership in the Navy. Admiral Johnson I've worked with on a daily basis, and he's truly an outstanding leader. He's got terrific help on the Joint Staff. He's got Admiral Blair, Redd, Clark. PACOM, you've got Admiral Prueher. Bob Natter I mentioned, and Admiral Loeffler. EUCOM, I think I see Admiral Lopez here. Boy, he does a great job at EUCOM. Also Steve Abbott, I don't know if Steve is here or not, but another great officer. CENTCOM, of course Tom Fargo. Boy, what an area that is right now in terms of the leadership that he's providing out there. I believe I see Admiral Gehman somewhere in the audience over here at ACOM.

So when you look around and you look at the leadership in the Navy, you really have outstanding leaders, and it makes my job so much easier to be able to call upon the quality people that you have leading you and giving me good advice so I can in fact pass it on to the Commander in Chief and the National Security Council.

It's been a great year. I didn't expect to be here, frankly. I thought I'd be a private citizen. But one year later, it's been perhaps the greatest experience of my life to be in a position to serve the country in this capacity. I must tell you, when I step off that aircraft that says United States of America and the kind of respect that we enjoy globally, it makes me really proud to be able to represent you.

Thank you very much, and I'd be happy to entertain your questions. (Applause)

Q: Mr. Secretary, (inaudible) your views from your old area of expertise, (inaudible) NATO expansion. What are (inaudible)...

A: It's going to be interesting, how we're going to reconcile this. We've got Bosnia coming up. We are now in the process of trying to examine what the options are going to be presented by NATO, for NATO to pass judgment on in terms of what option, what's the configuration, what's the size of the force that's going to be there. That's going to be fairly contentious. The President indicated we're going to be there beyond June. How long remains indefinite at this point. As I said, being indefinite is not the same as being infinite, but Congress is going to want to insist on some kind of oversight in terms of how long.

If you recall the legislation said all funding ends on Bosnia as of June of this year unless the President certifies it's in our national interest to be there. Unless he can indicate how many, how long, how much, what's the impact on morale and readiness. And, by the way, submit a supplemental appropriation. He has to do all of that in order to get Congress to basically say okay. That's going to be a tough task. I'm going to have to carry the burden of persuading my former members that this is the right thing to do and it's in our interest to do so.

That's going to come at the same time we're having the debate over NATO enlargement. It's going to be quite an interesting fusion of these two issues. They are separate and distinct theoretically, but as a practical matter they're intertwined. One of the real problems I'm going to have is that we made a calculation last year, an estimate, that it would cost somewhere between $7 and $9 billion as far as our commitment to the NATO common fund. The total package was somewhere, $27 to $35 billion over a 13 year period for the cost of these three countries coming into NATO. But in terms of the common fund in NATO, it's roughly $5 to $7 billion.

Since that time, and Admiral Lopez can probably give you a better rundown on this than I can, but since that time there has been sort of an empirical examination of what is involved. As I recall, it's something like $1.5 to $1.7 billion over that 13 year period.

I've got to go up and explain what the difference is. What you're going to see is members of Congress saying wait a minute. You really are taking it to us on this one. What you've done is you've deliberately underestimated the costs, because there were three analyses initially done. One was the one the Pentagon projected, another was the Rand Corporation which had it up to $42 billion over the 13 year period. Then there was a CBO study that had $125 billion.

We are now down to $1.5 billion in terms of what the NATO Defense Committee is saying what will be required for the U.S. participation. I can almost predict to you that the members on the Hill will say you really think you're pulling this one over us. You've downloaded what it's going to require for NATO enlargement, you've got a $2 billion price tag for Bosnia. What you're doing is you're going to sock Uncle Sam with both of them. It's $2 billion on Bosnia and it's going to be a lot more than $1.5 billion on the NATO enlargement. So it's going to be a tough sell.

I think many members will probably vote... I think we'll prevail on the NATO enlargement. It will not be easy. There's going to be a lot of trouble, however, in terms of the cost factor, the voracity of the numbers involved. They won't believe them. They'll still support it in spite of it, but begrudgingly. Then it comes the problem, how do I work that with Bosnia?

Then assuming that there's a negative reaction to Bosnia, what does that do to NATO enlargement? If they reject participating in Bosnia for any length of time in the future, then that will undercut NATO itself, because the NATO members say wait a minute, this is a NATO operation. Without you it is not NATO and you are bailing out. Now at the same time we're talking about enlarging our responsibility when you won't stay here. So it's going to be a real tough sell because of the two issues being intertwined. I think we'll prevail on the NATO enlargement. I think ultimately we will prevail in terms of saying that we're going to stay longer, but there's going to be very severe oversight in terms of what the "benchmarks" are going to be for determining at what point in time can we start downsizing our commitment to Bosnia.

Q: What about shaping the environment in emerging theaters such as (inaudible) Africa? What's our posture going to be for those (inaudible)?

A: On shaping the environment for the emerging theaters, the Caucasus for example, the Partnership for Peace program is one that... I must tell you, when I was a member of the Senate I didn't have much faith in it. But then I've been to some of the NATO Ministerial meetings, and I participated in the last PFP meeting -- had 40 countries there. They were eager to be there. Everybody wants to be with us, let's face it. Everybody wants to associate with the United States. They are running to embrace us faster than we can accept them. So it will be really a test in terms of our budgetary priorities, in terms of how many exercises can we carry out? This is one of the problems I've got as far as the OpTempo and the PersTempo.

You've got all of these countries now who want to have joint exercises with NATO, meaning a good portion for us. So it's going to be balancing, Admiral, in terms of how much we can do. But virtually all of the 'stans' want to be with us. You've got Bulgaria who wants to become part of NATO, Austria may want to become part of NATO. You've got all of the countries, Slovenia, Romania, there may be others who are rushing to get into NATO because they like what it provides. Stability. That's what we're selling today.

It's something I tried to point out over in Asia as well. Our businesses follow the flag. Wherever there is stability provided by the military, then business feels confident that they can invest and do it safely. If there is instability the money won't go there. All of these countries understand that, and that's why we are so much more welcome today than we were a few years ago.

I recall getting a lecture from (inaudible), for example, saying I don't know what's happened to your country, but here you are, you've got a $250, $300 billion deficit as far as the eye can see, your country's in a state of decline, we can't really rely upon you, you're taking on Japan and China at the same time -- no one takes on Japan and China at the same time, etc., etc. That went on. Now here we are looking at a balanced budget, looking at maybe even surpluses, looking at a country that has regained its competitiveness, and suddenly everybody wants us.

So when you look like you're weak and on the decline, they start moving away. The shadow from China starts to get bigger. Then they've got to make a calculation -- who do they want to be with? They want to be with somebody who really is going to provide protection for their interests. If it looks like China is growing and Japan is growing and the United States is getting weaker, they will go with what they see is the winner. Right now they want to be on our side. The same is true with the Caucasus and other countries.

We don't have really much activity in Africa yet, but I think the African Crisis Response Effort is going to prove big dividends.

Q: Mr. Secretary, what are your predictions for the relaxation of a dual containment policy with Iraq and Iran, and any implications (inaudible)...

A: The question was, what is the potential for a change in the dual containment policy in the Middle East -- Iran, Iraq. First, let me look at Iran.

The words coming out of Katami have been very positive sounding. He's using all the right words. We ought not to ignore them. There is a real fundamental change taking place at the citizen level in Iran. I think most people would recognize that. He reflects that by virtue of the fact that he got 70 percent of the vote. He reflects the change in sentiment in terms of the people wanting more democracy, as such. But what he doesn't yet reflect is the ability to transform their foreign policy, which means acts of terrorism, acquisition of biological, chemical, and nuclear weapons, and undermining the peace process in the Middle East.

We ought to be open to dealing with Iran on a government to government basis, to do so very tentatively, also not changing our policy saying unless you have a fundamental change, engage in behavior modification of your activities that threaten our interests and that of our allies and also the security of the Gulf region. We are not changing our policy towards you.

It's one thing for me to say that. The other thing is for us to be able to carry out. You have countries like France and Russia, Malaysia and others who now have signed contracts with Iran that will pour billions of dollars into their economy. We have expressed opposition, number one, because we have... A law has been passed by Congress saying that we will impose sanctions. That's going to cause us real heartburn. The French are strongly opposed to it; the Russians are opposed to it. We're trying to have better relations with the Russians. So there are political consequences for us to insist that other countries not put money into the economy of Iran as long as they're carrying out their existing foreign policy. So we've got a real juggling act to do with our allies who want to do business in Iran, have money invested over there, and our security interests. We're trying to persuade them that they should not sacrifice the long term security of that region for their short term economic interests, but it's a hard sell to do when they've got billions of dollars at stake.

We're going to maintain our policy, at least from what I can see for the time being, as well as try to contain Iraq. There, of course, is the big $64,000 question. What do we do about Saddam Hussein?

We are going to carry out our two carrier capability or presence in the Gulf region for the foreseeable future. We are prepared to take whatever military action is necessary, should it become necessary. The President is determined to try to exhaust every reasonable diplomatic avenue. And you're starting to see a change in the tone, the tenor, the comments coming out of members of Capital Hill, the tone of the editorials being written.

But I've always pointed out, no one is so passionate about going to war as a non-combatant, and we ought to keep that in mind. Everybody who's urging a military solution to this, we have to think through the implications of it.

The best thing for us to happen, from a strategic point of view, is to keep the inspectors on the ground. As long as they are on the ground carrying out their responsibilities, then we are keeping Saddam contained. He's contained in the north with the no-fly zone; he's contained in the south with the no-fly zone. We've got the sanctions imposed, we've got the oil for food program, so a limited amount of money going in to allow him to reconstitute his capability. But you have to have the inspectors on the ground.

Now if they can't carry out their duties, then you have to say what's the purpose behind it. So I think we're sort of nearing the end of the patience as far as trying to negotiate with Saddam Hussein to get access to all of the facilities there.

There is a division within the Security Council, not in terms of whether the UN should have unrestricted access. There is a division in terms of what action do we take. Should we really resort to military force? Military force will not really compel him to actually comply. What it will do, if we have to use it, will be to take out some of these types of the weapons of mass destruction, and some of those interests that he values most. But I don't think we should be under any illusion that we are going to bomb him into complying with the sanctions itself.

So these are tough issues. In the mean time we're going to keep the dual containment policy as long as we can.

I think I've kept you as long as I should. Thank you very much.

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