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(Recasts with comments from newly hired adviser, report co-author)
NEW YORK, June 29 (Reuters) - Puerto Rico is "insolvent" and will soon run out of cash, according to a newly appointed adviser to the commonwealth who was the judge who oversaw the historic bankruptcy of Detroit.
The U.S. territory's future hinges on gaining eligibility for debt restructuring under the U.S. bankruptcy code, a process it does not currently have access to, said Steven Rhodes, who retired as a U.S. Bankruptcy Court judge earlier this year and has been retained by Puerto Rico to help solve its problems. He stressed that bankruptcy would not be a "bailout".
Puerto Rico "urgently needs our help," Rhodes said on Monday at a meeting where a dire fiscal report on the island by former economists of the International Monetary Fund was presented to the government. "It can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer," he said.
The report, which Puerto Rico commissioned last February to analyze its economic and financial stability and growth prospects, showed Puerto Rico faces tough decisions on brutal reforms and a possible debt restructuring to relieve its $73 billion debt burden.
"The situation is dire, and I mean really dire," said former IMF economist Anne Krueger, co-author of the report, as she presented it to the island's government on Monday. "The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico."
Governor Alejandro Garcia Padilla said that over the next week leaders would host meetings and briefings and tell citizens the steps the commonwealth is taking to address Puerto Rico's problems.
Puerto Rico faces crunch time this week - ironically at the same time as does debt-laden Greece - with a Tuesday deadline to agree to a restructuring of its electric power utility PREPA or agree to extend the deadline. Another deadline looms on Wednesday, for paying various bonds including its general obligation debt.
Citizens of Puerto Rico could face tough measures such as fewer teachers, higher property taxes and suspension of the minimum wage, if Puerto Rico follows the report's recommendations of debt restructuring and austerity measures.
The report, made available late Sunday, said Puerto Rico's fiscal problems are much worse than assumed and that the island needs to restructure its debts because tax rises and spending cuts alone would not be enough of a fix.
Bondholders, even those who own government debt that is generally regarded as sacrosanct, would have to take a hit under the report's recommendations.
"We must make difficult decisions to meet the challenges we now know are ahead," Padilla said in a statement.
The governor will make a televised address to the commonwealth at 1700 EDT (2100 GMT) on Monday.
The U.S. government seems unlikely to get involved despite months of talks between Puerto Rico and the U.S. Treasury about options to seek financial help, according to a source familiar with the situation on Friday.
"There's no one in the administration or in D.C. that's contemplating a federal bailout of Puerto Rico," a White House spokesman said.
The prospect of a debt restructuring spooked investors and sent Puerto Rico's benchmark general obligation bonds that carry an 8 percent coupon and mature in 2035 down 8 percent. Shares of monoline bond insurers with exposure to Puerto Rico's securities fell sharply. Assured Guaranty shares fell 9.9 percent while MBIA Inc fell 13.9 percent.
The report recommended a debt restructure via a voluntary exchange of existing bonds for new ones with a longer or lower debt service profile.
The New York Times on Sunday cited Padilla as saying the island's debts were not payable and that creditors would probably have to take significant concessions such as five-year payment deferrals.
"We have to negotiate the debt," Senate President Eduardo Bhatia said as legislative leaders announced they would approve the 2016 fiscal budget on Monday.
Reporting by Megan Davies in New York and a contributor in Puerto Rico; Additional reporting by Edward Krudy; Editing by Chizu Nomiyama and Leslie Adler