In a medium saucepan, bring the water to a boil.
Add the rice and cook until tender, about 15 minutes.
Drain any excess water and set the rice aside.
In a large saucepan, combine the milk, sugar, cinnamon stick, ground cinnamon, and ground nutmeg.
Heat over medium heat, stirring occasionally until the sugar has dissolved and the mixture is hot.
Add the cooked rice to the milk mixture.
Reduce the heat to low and simmer, stirring occasionally, for about 30 minutes or until the rice is soft and the mixture has thickened to a creamy consistency.
If using, stir in the raisins and coconut milk.
Continue to cook for another 5-10 minutes, until the raisins are plump and the mixture is well combined.
Remove the cinnamon stick and stir in the vanilla extract.
Spoon the arroz con leche into serving bowls.
Garnish with freshly grated coconut if desired.
Enjoy your meal!