U.S. Treasury Secretary Jack Lew on Tuesday said Puerto Rico's financial crisis risks turning the commonwealth into a chaotic mess unless the U.S. Congress can enact a plan to restructure its debt.

"The challenge is for Congress to act fast enough so that the unfolding crisis in Puerto Rico doesn't cascade out of control," Lew said during an on-stage interview at the annual Milken Institute conference in Los Angeles.

The island faces $70 billion in debt overall, a staggering 45-percent poverty rate and a shrinking population. It owes another $1.9 billion on July 1 that Governor Alejandro Garcia Padilla says it cannot pay.

On Monday the Government Development Bank defaulted on a $422 million debt payment while it agreed to a tentative restructuring framework with some large creditors who promised to hold back from taking legal action for 30 days.

Congress is debating a bill to put the island's finances under federal oversight and allow it to restructure debt in a bankruptcy-like process. The bill has faced criticism from conservative and liberal wings of both parties.

Lew reiterated there was so far little spillover from Puerto Rico's problems into the $3.7 trillion U.S. municipal bond market where it is a major issuer of triple-tax-free debt.

"In the absence of a restructuring, what you will end up with is a chaotic unwinding which does enormous harm to millions of Americans, including veterans who served loyally in our military. That I believe is something that has more of a potential spillover risk to the municipal bond market than anything else," Lew said.

As a U.S. territory, Puerto Rico cannot file for bankruptcy protection. It is struggling to pay for basic services like police and firefighters as well as combat the spread of the Zika virus.

Lew reiterated that putting in place an independent oversight authority to work out an orderly restructuring would also ensure fairness to all stakeholders.

Some investors are concerned that if all bondholders are treated the same, there is a risk of eroding well established rules governing who gets paid and when in a restructuring.