U.S. Defense Secretary Leon Panetta is downplaying the prospect of so-called “sequestration” cuts to the Pentagon’s budget.

“Sequester is not a real crisis, but an artificial crisis,” Panetta says, adding that Congress deliberately “put a gun to its head” with the Budget Control Act, which forces across-the-board spending cuts if lawmakers fail to make sufficient progress in reducing the U.S. federal budget deficit.

“It forces them to make decisions and if they don’t, the gun goes off,” Panetta says. But he adds: “I am confident Republicans and Democrats will find a way to de-trigger this artificial crisis. Both sides recognize that sequestration would be a disaster.”

The U.S. government has already agreed to reduce the Defense Department’s budget by $487 billion over the next decade, Panetta notes. But the U.S. needs to trim the deficit even further, so Congress has set a deadline of early next year for when additional cuts need to be decided on. If there is no decision on the matter, the “sequestration” penalty mandated by the Budget Control Act kicks in, and the Pentagon will automatically be hit with a further $500 billion cut spread over 10 years.

Panetta says the U.S. is just one of several nations having to deal with debt and deficits. “This new fiscal reality is a change many nations face and creates an opportunity to design a new defense strategy,” he says. The U.S. military will become smaller, but Panetta maintains it will remain the strongest in the world and be capable of dealing with the challenges ahead. “It will be smaller ... but it will be agile, flexible, quickly deployable and will deploy cutting-edge technology,” he says.

Panetta also asserts that the U.S. military will retain a global presence by using rotational deployments and by making use of new alliances.

The areas of technology and capability in which the U.S. will be investing more heavily in the future will be space technology, unmanned aerial vehicles and special forces, according to Panetta. “We will invest in the ability to deploy quickly,” he adds.

Panetta spoke June 2 at the IISS Shangri-La Dialogue here, largely before an audience of Asia-Pacific defense ministers and policy makers, so he took the opportunity to highlight the recent U.S. decision to rebalance its military forces around the globe to have a greater presence in the Asia-Pacific region.

The U.S. military will be increasing the number of military exercises it does in the Pacific, and the U.S. Navy will be increasing its port visits, Panetta says. The Navy fleet is now split 50:50 between the Pacific and the Atlantic, but going forward the split will change to 60:40 in favor of the Pacific, he says. “There will be six aircraft carriers in the Pacific, and the majority of our cruisers, destroyers, submarines and littoral ships” will be here too, he adds.

He says the investments the U.S. will be making in Lockheed Martin F-35s, new electronic warfare capability, Virginia-class submarines, new aerial refueling tankers, new bombers and advanced maritime patrol and anti-submarine warfare aircraft will help the U.S. meet the challenges of operating in the Pacific.