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NY Fed urges Puerto Rico to pursue economic reforms

New York's Federal Reserve Bank is warning that Puerto Rico needs to improve its financial health soon or face what it called a "painful adjustment."

The bank released an analytical report Thursday as U.S. investors waited to learn whether the island's power company would meet a July 31 deadline to make payments on $671 million it owes to banks or extend the deadline once again.

The report makes several recommendations that the New York Fed believes are needed to help push the U.S. territory out of a nearly decade-long economic slump.

Among the recommendations is that Puerto Rico shrink its underground economy, broaden its tax base and reduce rates, and strengthen its public corporations. Analysts said the government also should approve legislation requiring the creation of a long-term budget.