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Obama Administration Draws Up Economic Rescue Plan for Puerto Rico

FILE - A woman walks in front of a closed bank in the neighborhood of Rio Piedras in San Juan, Puerto Rico, June 29, 2015.

The Obama Administration has proposed a plan to rescue the U.S. Caribbean territory of Puerto Rico from $72 billion in debt.

The Treasury Department unveiled a plan on Wednesday that would allow the island to seek bankruptcy protection in federal court so it can restructure its debt, an option that is only available for individual cities and municipal agencies.

Puerto Rico's Government Development Bank broke off talks with creditors Wednesday when they refused to accept lower payments on existing government bonds.

The Treasury Department also wants to create a financial control board for Puerto Rico, extend the federal income tax credit for the working poor to the island's impoverished residents, and overhaul Puerto Rico's Medicaid program, the joint federal-state health insurance program for poor Americans.

A statement issued by Treasury Secretary Jacob Lew urged Congress to approve the plan, saying it was the only entity "to provide Puerto Rico with the necessary tools to restructure its financial liabilities in a fair and orderly manner." The statement also warned that all the emergency actions the island has taken to address the problem will be exhausted within months.

About 45 percent of Puerto Rico's 3.5 million people live in poverty, which has forced scores of them to flee to the mainland United States. Puerto Ricans are U.S. citizens, but cannot vote in presidential elections. The island has a non-voting member in Congress.