U.S. Treasury Secretary Jacob Lew met the group of bondholders reiterating Puerto Rico's need to have access to a debt-restructuring regime to solve its severe and rapidly deteriorating fiscal and economic crisis.
Treasury representative said in a statement, "Lew urged all stakeholders to come to the table. He warned that a disorderly default - a likely outcome in the absence of Congressional action - could trigger protracted and costly litigation."
Lew also told the group of bondholders that Puerto Rico needs an "orderly restructuring" of its debt that would require approval by U.S. Congress.
He told them it was essential that the small U.S. territory crumbling under $70 billion in debt needs Congress to pass laws establishing a process on orderly restructuring of the Caribbean island's debt.
But some creditors have fought such a move and so far Congress, requested by Puerto Rico and the White House to give it the right to enter bankruptcy protection, has not obliged.
Puerto Rico has been locked in recession for a decade, and defaulted on some debt payments at the beginning of the year.
Despite sweeping spending cuts and some policy reforms, it has not been able to stop the deterioration of its budget deficit.
President Obama earlier stated in the Democrat's retreat in Baltimore, "My administration has put forward a comprehensive proposal to give Puerto Rico the necessary tools to address its crisis, create a path to recovery."
"And the most urgent tool that we need right now - a comprehensive restructuring authority - costs taxpayers nothing and will help more Americans regain control of their own economic security. That's the kind of thing Democrats believe in," Obama added.
Lew also said that the people of Puerto Rico are sacrificing, but unless that sacrifice is shared by creditors in an orderly restructuring, there is no path out of insolvency and back to growth. Without congressional action, Puerto Rico will face a long and difficult recovery that could have harmful consequences for the American citizens who call the island home.
Time is running short for Puerto Rico. The government has not paid tax refunds, it has raided state pension funds, and it owes money to suppliers and contractors.
Jim Millstein, former Treasury official and a restructuring expert advising Puerto Rico's governor, said they are at the point where suppliers are stretched as far as they can stretch them.
He added that it would mean no more supplies for hospitals or schools and further blows to the economy.
"When we don't give taxpayers their money, that means that's money they aren't spending," he said.
Money paid to bondholders is flowing out of the territory, hurting growth further. Millstein said, "We have to get something done with creditors; otherwise, there will be widespread defaults."
