COHEN: General Shalikashvili has testified in the past about the need for us to ramp up to roughly a $60 billion dollar procurement budget. We are far from that right now. As we go through the charts that I've indicated to you, it's very clear from the chart that's presented that there is a gap between where we are and where we have to be.

We have made some progress in the past year. If you look at the president's budget for this submission, this year, as compared to last year, you will see the correlation between those two lines that it's higher. The president's budget has been increased over what it was for the last year's submission. That was made possible by virtue of $7 billion that was added by the president over the FYDP, along with $4 billion that the department is allowed to keep for inflation savings.

And so roughly, that $11 billion has been factored in over that FYDP and that accounts for the corresponding or parallel lines going up.

But if you turn to the chart dealing with modernization, you will find while we have made some improvement with respect to the modernization budget, it is still a long ways from the $60 billion target that we would like to hit.

Now I've said this in the past, that there is nothing that is sacrosanct about that $60 billion figure.

That is the best and most reasonable judgment that has been forwarded by the Defense Department. It shows what needs to be done to pay for those systems that are currently projected as being needed for our armed forces.

That may change. Conceivably, after we go through the QDR process which I'll talk about in a moment, that might change. We may determine that once everything is on the table and you look at the manpower requirements, force structure, strategy, infrastructure, readiness, human resources, all those areas are now being examined, that perhaps it won't be as high as $60 billion. But that is roughly the figure that we're looking at now as being essential for us to achieve the goals that we currently have.

And so that would be the area of my concern. I know it would be the area of concern on the part of most of the members of this committee that we still seem to be quite a ways away from that $60 billion figure. And the goal is pushed further out into the future than we would like to see it. And this is something that has been happening historically whenever there is a problem.

The chairman mentioned Bosnia by way of example. Whenever we have an unplanned contingency in which we need to have additional funding, it comes out of the procurement budget. It comes from procurement into O&M and actually, it even goes from the maintenance side of things that we also depreciate and putting it into operations.

So we have sort of a double slice of this where we take money from procurement and put it into O&M and then when the O&M funds start to run a little bit dry, we take it out of maintenance and you can see that. We're talking about housing and other types of quality-of-life types of improvements we need to have. They're also going into current operations.

So that's the area that we have to address I think most forcefully in the future, and it's one that hopefully we will address in the QDR process which will be completed by May 15. I've made it quite clear that we need to be on time. It's a very short time frame that the department has to really go through a thorough examination of virtually every facet of the defense budget as such to look at again.

Have we got the right strategy? What is the appropriate strategy for the future? And once we decide upon the strategy, what is it we need to have in the way of force structure to match that strategy, and then obviously the equipment to be able to carry it out.

I have indicated to the department that I expect that process to be strategy-driven. I don't want it to be budget-driven. Obviously, in saying that, that it's going to be strategy driven, we also have to recognize we're living in a constrained budget environment.

Absent any kind of a major conflict in the foreseeable future, I think it's unlikely that we're going to see significant budgetary increases over and above inflation in the coming years. And so if that is the case, then something has to give.

We have to make some adjustments across that spectrum that I mentioned, looking at modernization, infrastructure, all the stove pipe issues that we're now currently examining, if we are going to, in fact, have the kind of force that is going to be necessary for the future.

So while it's going to be strategy-driven, we also know it's a constrained budget environment, and we're living in a time in which we're calling for balanced budget amendments. So while many would like to count on the fact that if you're on the Appropriations Committee or in the other body's Appropriations Committee, there'll be an incentive to add on funds, as was done last year, I think that will diminish over a period of time, as the pressure for the balancing the budget continues, that there won't be quite as much eagerness to add funds to the defense budget.

Quite to the contrary, you will see forces arrayed within the Congress, I suspect, to try to take more out of defense and put it into domestic programs. And so it's with that in mind that I have approached this QDR process to say we've got to really take a very hard look at everything across the board. Everything is on the table.

And I'm pleased to report to you that I have had very long and serious deliberations with the joint chiefs of staff, with the chairman of the joint chiefs, who is here. And I've been very impressed with the degree to which the chiefs have enmeshed themselves into this process and now taking a leadership role, and really working it from the top down, not waiting for those at the bottom level to simply surface alternatives or options.

The chiefs are actively involved in moving this process through to its conclusion. And again, I hope to have that completed by May 15 so I can follow the report. I believe timeliness is important as far as getting the reports in. And it puts great stress on the system. You want thoroughness as well as it being expeditious. And so it's a rough balance of trying to achieve.


OBEY: First of all, with respect to the Quadrennial Defense Review, as you know the two MRC approach is based on the expectation of a major threat in the Middle East, and a major threat on the Korean Peninsula. Could you give us, General, your judgment about what has happened to the military capability of Iraq and North Korea since 1990?

SHALIKASHVILI: Let me start with Iraq.

OBEY: I would ask if you could hold your response to about two minutes so I can have time for my second question. I'd appreciate it.

SHALIKASHVILI: In Iraq, the forces are about half of what it was at the time of Dessert Storm. I believe the quality is at best one half of what it was during Dessert Storm, principally because they've been denied the supplies and had to cannibalize to keep the force going. But they do do good training.

In Korea, a few months ago, I would have told you that it was very good. It's a little difficult to tell what all of the social problems and economic problems that they are experience has on that force. But what we can see, Mr. Obey, is that they're training a lot less than they trained before.

So the logical conclusion would be that they cannot be as ready as they were before although they're as large as they were before. And they still continue to manufacture long-range artillery pieces and other things that most directly threatens Seoul. ................................