CORRECTED-UPDATE 1-Puerto Rico expects to get federal economic incentives-Bhatia

Mon Oct 7, 2013 4:16pm EDT

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By Edward Krudy

NEW YORK Oct 7 (Reuters) - Federal officials are expected to announce incentives for economic development for Puerto Rico in the next few months, a top legislator from the commonwealth said on Monday, responding to investor concerns about the island's rising debt costs.

But the help is not expected to include direct financial aid, Puerto Rico Senate President Eduardo Bhatia told a gathering of municipal securities analysts in New York. He did not provide specifics about what any plan might consist of.

The assistance would come in response to the last four years of recession in the Caribbean territory, Bhatia said. It has been given added urgency due to the selloff in Puerto Rico's debt over the last few months, he said.

The selloff in Puerto Rico's bonds has been driven by worries about the territory's shrinking economy, and its jobless rate and per capita debt which are far higher than that of any U.S. state.

Puerto Rico has about $70 billion of outstanding debt, or nearly 2 percent of the overall $3.7 trillion municipal bond market.

Officials there have embarked on economic reforms intended to show that the Caribbean territory will pay its debts, Bhatia said.

"The kind of reform you are making us do is very tough," Bhatia said. "But we are doing it because we want to send a signal that we are honoring our debt."

Economic development officials and Puerto Rico Governor Garcia Padilla have been in talks with the U.S. Treasury and White House, he said.

A Treasury spokesperson told Reuters on Monday that they were monitoring the situation but would not discuss where the monitoring would lead.

"Given the potential for Puerto Rico's financial challenges to impact United States markets, including the municipal market, Treasury continues to closely monitor developments," said the spokesperson, who did not want to be named.

A senior White House administration official said that President Barack Obama's task force on Puerto Rico has been "working for a number of years to maximize the impact of federal resources on the island."

"As part of its ongoing work, the task force is coordinating with federal agencies to strengthen Puerto Rico's fiscal situation and economic outlook," the official said. "To that end, the task force is working closely with Governor Garcia Padilla's administration to make sure that federal resources are fully utilized for maximum impact for the people of Puerto Rico." (Reporting by Edward Krudy; Writing by Hilary Russ; Additional Reporting by Lisa Lambert; Editing by Chris Reese, Tiziana Barghini and Carol Bishopric)

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