US Treasury Secretary Jacob Lew urged Congress on Tuesday to pass laws that would enable heavily indebted Puerto Rico to enter bankrupcy to restructure its debt.
Lew said in a letter to Senator Orrin Hatch, chairman of the powerful Senate Finance Committee, that because current law prevents the US territory from filing for bankruptcy, any attempt to restructure its $73 billion in debt faces "numerous creditor lawsuits and years of litigation."
That would further "depress the local economy, increase costs, and make long-term recovery harder to achieve," he warned.
"By granting Puerto Rico access to an orderly bankruptcy regime as soon as possible, Congress can help put Puerto Rico -- and the millions of US citizens who live there -- on the best path to a sustained recovery," he said.
Lew told Hatch that the situation is "urgent", adding that the federal government is not considering a bailout of the island territory of 3.5 million people, even as it nears a massive debt default.
"Without a tested legal regime in place, a resolution of Puerto Rico's financial obligations would likely be chaotic, protracted, and costly both for Puerto Rico and more broadly for the United States."
Earlier this month two senators introduced legislation that would allow Puerto Rico's municipalities and public utilities to restructure their debt under the guidance and protection of a bankruptcy court.
"We can either do the right thing and give Puerto Rico the bankruptcy option it needs and deserves, or we can risk a disaster on the island and billions in bailout payments later," Senator Chuck Schumer, one of the sponsors, said at the time.