On Monday, Puerto Rico missed a $422 million payment to its debtors. It’s not the first time that the island will default on a payment, but it is so far the largest, most notable, and most concerning development since a dismal report last summer about the territory’s economic standing.

In a speech Sunday night, Puerto Rico Governor Alejandro García Padilla said, “Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice. I decided that essential services for the 3.5 million American citizens in Puerto Rico came first.” The island has long struggled with unemployment and poverty, but the financial situation on the island has gotten continually worse over the past 10 months; in order to pay out the debts owed on Puerto Rican bonds, the territory has reduced funding to schools and health-care programs and raised its sales tax.

García Padilla has now instituted a debt moratorium, meaning that the territory won’t spend money on debt payments for the time being (though for now it will continue to make interest payments on that debt). Monday’s missed payment is significant both because of the sum of money is large and because the Government Development Bank, the island’s main bond issuer, is a respected financial entity.

More than that, the inability to make the May 1 payment may foreshadow more consequential defaults later this year. In July, the commonwealth faces a $2 billion payment, which, at the moment, it seems unlikely to make. That too will be significant because about $800 million of the bonds due in July are general-obligation bonds, which means that their payments are supposed to be guaranteed by the island’s constitution (something that wasn’t true of the $422 million not paid out on Monday). Overall, the territory owes around $72 billion in bond payments, and the Government Development Bank has said the island can’t possibly afford it; one plan Puerto Rico and bondholders have been discussing would allow the territory to pay about 50 cents on the dollar for its debts, but that arrangement hasn’t been finalized.

Nonpayment could push the commonwealth further down the road of austerity, with more cuts to basic services, such as electricity, hospitals, safety-net programs, and pensions. Puerto Rico would face the largest municipal-debt default ever if the commonwealth doesn’t find a way to begin paying back its debts, specifically the more sizable ones that are starting to come due. A total default would likely have significant reverberations for the U.S. municipal-debt market. Default, especially on large sums to major creditors, could result in numerous, expensive lawsuits that would prove costly on both sides of litigation.

Many are hoping it won’t come to that, but at the moment, the island is also in political limbo while Congress decides whether or not to grant Puerto Rico the ability to file for bankruptcy, an option available to municipalities, but not commonwealths. Filing for bankruptcy allows for greater freedom in managing debt crises through restructuring—altering debt payments enough so that it’s feasible to meet financial demands. But Congress has been slow and the idea of allowing a bankruptcy is a politically contentious one.

In the interim, Puerto Ricans continue to head to the mainland in search of work and stability. In fact, the number of residents leaving the island is at a record high—around 84,000 departed in 2014 alone, according to the island’s Institute of Statistics.

García Padilla spent part of his speech on Sunday urging a resolution that would work for all parties involved, preferably through government action. He said, “If Congress fails to authorize a mechanism to restructure our debt, the 3.5 million American citizens who live in Puerto Rico will continue to suffer.”