US officials urged Congress on Thursday to push through new laws to reform Puerto Rico's finances, warning that it will soon run out of money.
The US territory's governor and a top official from the US Treasury Department said Congress should act on proposals that would allow the debt-laden Caribbean island to seek bankruptcy protection and force a rescheduling of its debt.
"The Commonwealth of Puerto Rico is in the midst of an economic and fiscal crisis, and, without federal action, the situation could become a humanitarian crisis as well. Puerto Rico's government is out of cash and running out of options," Antonio Weiss, counselor to the Treasury secretary, told the Senate Energy and Natural Resources Committee.
Governor Alejandro Garcia-Padilla told the panel that his government may run out the money needed to meet all of its obligations "before the end of the year."
It will then "inevitably have to choose between paying its creditors on time and providing essential government services to the island's 3.5 million American citizens."
The pleas for action came after the White House issued proposals to help the island resolve its looming default on a $73 billion debt load that has led to it being labeled "America's Greece".
Puerto Rico has been in recession for nearly a decade and the downturn has sparked an exodus of citizens to the US mainland, further depressing the local economy.
Key among the proposals is to allow it to file for bankruptcy protection that would force creditors to negotiate together to restructure the debt, which could eventually include a huge debt writedown.
Like US states, Puerto Rico is not allowed under current law to seek bankruptcy protection. Yet it was able for years to issue huge amounts of tax-free municipal bonds like cities, which are allowed to file for bankruptcy.
The government also proposed that Congress authorize an independent financial fiscal oversight board to ensure the territory implements needed reforms.
Weiss stressed that fixing Puerto Rico's problems must begin with Congress, and stressed that the proposals "are not a bailout" but instead reforms.
"We remain deeply committed to doing what we can to help, but congressional action is required to avert further crisis and put Puerto Rico's economy on a path toward sustainable growth."
Garcia-Padilla said that the island faces a funding shortfall of $28 billion over the next five years, and that even reforms would only address half of that, so that it will require "substantial debt relief".
"When faced with the prospect of either making payments on debt obligations or paying for essential public services, Puerto Rico will have no choice but to default. Nobody wants this, but it is a reality, and the consequences will be grave," he warned.