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Puerto Rico Faces ‘Difficult Choices Ahead,’ U.S. Treasury Says

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Aug. 4 (Bloomberg) -- Puerto Rico, the junk-rated U.S. commonwealth, needs to tackle its fiscal challenges with a comprehensive strategy that includes an overhaul of its tax system, the U.S. Treasury said.

“Although Puerto Rico has additional difficult choices ahead, we recognize the importance of the Commonwealth’s ongoing efforts to achieve fiscal stability and economic growth,” Kent Hiteshew, Treasury State and Local Finance Office director, said in remarks prepared for a speech today in Baltimore.

“We believe a comprehensive strategy, rather than an incremental one, will create the best environment for future growth and investment in Puerto Rico,” he said.

The self-governing territory of 3.6 million, which has $73 billion of debt when including its agencies, lost its investment grades this year. The commonwealth is contemplating restructuring some of its public-corporation borrowings.

Puerto Rico and its agencies, including the Electric Power Authority and the Highways & Transportation Authority, have borrowed over the years to help balance budgets. The commonwealth is the third-largest municipal debtor behind California and New York. The bulk of its obligations are tax-free nationwide, leading 66 percent of U.S municipal mutual funds to hold the securities.

“The Treasury Department remains in close contact with Commonwealth officials as we continue to monitor their progress,” Hiteshew said.

Hiteshew’s office also plans to study the U.S. public pension system.

“Our office will actively study the public pension landscape and serve as a resource for the administration as we evaluate ways to encourage retirement security and savings in the nation as a whole,” Hiteshew said.

He is the first director of Treasury’s new office, which he said will focus on assisting communities in distress, improving investment in infrastructure, and addressing challenges in public pensions systems.

To contact the reporter on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net James L Tyson, Mark Rohner