Puerto Rico’s governor has said the US territory cannot pay its $72bn (£45bn) debt and is close to defaulting ahead of emergency talks with legislators.
In a TV address on Monday, Alejandro Garcia Padilla said he would seek a moratorium on repayments and form a team to restructure public debts.
White House spokesman Josh Earnest says the US government has ruled out a federal bailout for the US island.
The self-governing US commonwealth has been in a recession since 2006.
Legislators have to approve a $9.8bn budget on Tuesday, which calls for $674m in cuts and sets aside $1.5bn to help pay off the debt.
Speaking on Monday evening, Mr Garcia Padilla urged the central authorities to grant Puerto Rico the ability to file for bankruptcy, enabling a postponement of debt payments for several years.
“Even if we increase revenues and cut costs, the magnitude of the problem is such that we would not resolve anything given the weight of the debt we’re dragging,” the governor warned in a TV address.
“The only way we’ll get out of this hole is to join forces and agree, including bondholders, to assume some of the sacrifices.”
Puerto Rico is currently not eligible to restructure its debts under US bankruptcy code because it is not a municipality.
According to Reuters, the White House said on Monday it would urge Congress to consider a change in the law that would allow the island to declare bankruptcy.
Mr Garcia Padilla earlier admitted the island was close to an economic “death spiral”, in an interview with the New York Times.
A report released by international economists hours before the governor’s address gave a blunt assessment of Puerto Rico’s fiscal problems, saying its debts were unsustainable and needed to be restructured.
Although the island is a US territory whose residents are granted citizenship, it does not have the same status as other states and municipalities.
This means it is unable to file for bankruptcy in the same way that the US city of Detroit, Michigan, did in 2013 if it cannot raise enough money to repay its debts.
The territory’s situation has drawn comparisons to Greece, where the government has shut banks and imposed restrictions on cash withdrawals.