Governor says US island can't pay public debt

Puerto Rico's governor warned on Monday that the US territory cannot pay its $72 billion public debt, as international economists released a critical report about the island's economy.

The news from Governor Alejandro Garcia Padilla delivered another jolt to the recession-plagued commonwealth, as well as to a world financial system already worried about Greece's collapsing finances.

Garcia was scheduled to air a prerecorded television address as legislators continued to debate a $9.8 billion budget that calls for $674 million in cuts and sets aside $1.5 billion to help pay off the debt. The budget has to be approved by Tuesday.

The governor hopes to defer debt payments while negotiating with creditors, his spokesman, Jesus Manuel Ortiz, said late on Sunday, confirming comments by Garcia that appeared in The New York Times.

The White House has no plans to bail out Puerto Rico from its debt crisis, according to spokesman Josh Earnest. Instead, he said, the Obama administration will work with Puerto Rico to identify existing federal resources that can help. He said Treasury Department officials are also working with the island's government.

Earnest said the federal government's help would be similar to what it provided to Detroit, Michigan, during the city's 2013 bankruptcy, the largest municipal bankruptcy in US history.

"There is no other option. I would love to have an easier option. This is not politics, this is math," Garcia was quoted as saying.

Puerto Rico's bonds were popular with US mutual funds because they were tax-free, but hedge funds and distressed-debt buyers began stepping in to buy up debt as the island's economy worsened and its credit rating dropped.

Garcia's comments will likely not have much impact on Wall Street, according to economist Jose Villamil, a former UN consultant and CEO of an economic planning firm.

"The markets are clear that Puerto Rico is heading in a direction of a restructuring or default," Villamil said, adding that a voluntary restructuring by bond holders might be the best option.

"The last four administrations have kicked the can down the road," Villamil said. "At this point, there is no more can to kick. So we're going to take some very strict measures and some very profound measures. It's going to hurt, but there's no way out."

A report released on Monday by a former World Bank chief economist and others found that Puerto Rico's fiscal debt is larger than originally thought. The report urged the government to act quickly.