By David Alexander and Phil Stewart
WASHINGTON (Reuters) - Defense Secretary Chuck Hagel told the U.S. military on Wednesday to brace for a new round of belt-tightening as he carries out a sweeping review that could slash the number of generals, pare back civilian workers and stem spiraling costs of new weapons.
But Hagel, in his first major policy speech, also warned that the United States could not allow its current fiscal and budgetary crisis to force it to retreat from its role in the world.
"America does not have the luxury of retrenchment - we have too many global interests at stake, including our security, prosperity and future. If we refuse to lead ... someone will fill the vacuum," he said in remarks prepared for delivery to students at the National Defense University in Washington.
But at the same time, he stressed the limits of military power, saying that most of the world's pressing security challenges have political, economic and cultural components and "do not necessarily lend themselves to being resolved by conventional military strength."
Hagel took the helm at the Pentagon in February as it was struggling with $487 billion in budget cuts over a decade beginning last year. An additional $500 billion in cuts over a decade began March 1 under the across-the-board cuts known as sequestration.
Under those cuts, the Pentagon must slash $41 billion by September 30, the end of the 2013 fiscal year. Next year it is facing another $50 billion in cuts unless Congress and the White House agree on alternatives to reduce federal budget shortfalls.
At the same time, Hagel, a Vietnam veteran, is winding down the war in Afghanistan and grappling with a host of security challenges, from North Korea's threats to Iran's nuclear advances and the possibility of cyber attack from several countries.
WILL BUDGET CUTS ENDURE?
Hagel, while maintaining he did not "assume or tacitly accept" that further deep budget cuts would endure, said the Defense Department could not "simply wish or hope our way to carrying out a responsible national security strategy and its implementation."
In looking at areas where the Pentagon needed to further reduce spending, Hagel took aim at some of the key factors that have been driving up costs at an unsustainable pace, including excessive bureaucracy, creeping personnel costs and unwieldy weapons-development programs.
"In many respects, the biggest long-term fiscal challenge facing the department is not the flat or declining top-line budget, it is the growing imbalance in where the money is being spent internally," Hagel said.
He said he was concerned that the military was looking at "systems that are vastly more expensive and technologically risky than what was promised or budgeted for" as it attempts to modernize its weapons.
While recognizing the sacrifices of troops and their families over nearly a dozen years of war, Hagel said "fiscal realities demand" the Pentagon take another look at the number and mix of military and civilian personnel it employs.
"Despite good efforts and intentions, it is still not clear that every option has been exercised or considered to pare back the world's largest back-office," Hagel said, referring to the size of the Pentagon's administrative bureaucracy compared to numbers of combat troops.
He said the military's hierarchies needed further re-examination as well.
"Today the operational forces of the military - measured in battalions, ships and aircraft wings - have shrunk dramatically since the Cold War era," he said. "Yet the three- and four-star command and support structures sitting atop these smaller fighting forces have stayed intact, with minor exceptions, and in some cases they are actually increasing in size and rank."
(Reporting By David Alexander; Editing by Philip Barbara)