Puerto Rico's governor signs tax bill into law

The tax law, signed in by Governor Alejandro Garcia Padilla, allows Puerto Rico to pursue negotiations with hedge funds and other creditors over a bond deal of up to $2.95 billion. Finance officials have said the island could run out of money by the end of September without financing.

"This consensus measure mitigates the difficult fiscal situation facing the Puerto Rico government," said Victor Suarez, the chief of staff of the governor's office. "Now we must complete the presentation of a balanced budget and the implementation of austerity measures to secure services and essential projects for our development."

The key component of the tax plan is an increase in the local sales tax to 11.5 percent from its current 7 percent. It comes after weeks of wrangling sparked when House lawmakers defeated a bill to create a 16 percent value added tax.

(Reporting by a contributor in San Juan; Editing by Megan Davies and Lisa Shumaker)