Mexico's nosediving peso and skyrocketing interest rates have hit its middle class harder than any other segment of society. Last year residents of Mexico City eagerly embraced then-President Carlos Salinas de Gortari's vision of a new Mexico in which debts were a natural part of the middle-class lifestyle. This year many have lost hope in a better life, unable to afford even a night out at a fast food restaurant. PNS correspondent Sam Quinones is based in Mexico City. This is the first of a two-part series.

MEXICO CITY -- Until a few weeks ago, Carlos Zepeda thought he had it made. Employed by one of Latin America's biggest banks, Banamex, he signed a lease on an expensive apartment, invested in a cellular phone, enrolled his six year old son in a private school, and hired a part-time maid to keep house.

On March 8, Banamex laid him off along with 300 other employees -- the first of some 3,000 the bank plans to let go by the end of the year. Although his wife still works, her job is also with a bank that will cut back too as thousands of loans go bad.

"When you're hired by a place like Banamex and you get a decent salary, you believe that life is settled," Zepeda says. "You begin getting things -- 'luxuries' to which you believe you have the right because your job is supporting you. You say, 'I can.' Then they pull the rug out from under you."

When the middle class starts unravelling, that's when revolutions occur, warns small business consultant Salvador Garcia Linan. And it's the middle class -- saddled with fixed costs and debts the poor would never assume but without the rich man's access to U.S. bank accounts -- that is being pummelled the hardest by a nosediving peso and stratospheric interest rates. Rates for credit cards, home mortgages, car and business loans topped 120 percent by mid-March. This week Reforma newspaper reported a new poll showing that many families are using 43 percent of their income just to pay off bank debts.

"People are fed up," says Garcia Linan. "We're very close to people not paying banks, and people assaulting supermarkets. It's the most serious situation for the country since the Revolution."

Already the credit card is history. Some 6 million credit card holders have stopped making payments, according to a Mexico City non-profit consumers group. At Banamex, charge authorization calls were running between 450,000 to 500,000 a month last year. So far this year, the bank handled roughly 60,000 calls a month.

Patronage at fast food and upscale family restaurants -- both middle-class favorites -- has dropped by 40 and 30 per cent respectively so far this year. Industry officials predict that, nationwide, some 10,000 restaurants will close their doors at a cost of 70,000 jobs. At Mexico City's private schools enrollment has dropped 10 percent since the start of the year -- remarkable since families usually cut school tuition last.

Garcia Linan figures that about one-fifth of Mexico's officially registered 1.5 million small businesses will go bankrupt this year. The loss will be dire because small businesses have been a principal access road to entering the middle class as well as the country's prime job generators.

Given current interest rates, "it pays not to produce," says David Canizares, who owns an electric light assembly plant in north Mexico City. "Many people are getting repaid what they're owed and putting it in the bank. The rates are over 100 percent. What can you produce that gives you that return?"

Canizares' firm still produces, although he has laid off three workers. His mother, brother and the families of his 38 remaining workers depend on the company for their own survival. "It's a social responsibility to keep this business going."

Patricia Guevara is especially hard hit. The only credit she could raise to start her taco and sandwich booth at the Mexico City airport was in dollars. Now, each month, she has to come up with $1,540 in U.S. dollars to meet her debts.

With profits nil, Guevara has stopped paying rent at both her home and business, and only manages to cover food and payroll costs. She's trying to renegotiate the debt, but the terminal's owner also needs cash.

Last year, Guevara embraced then-President Carlos Salinas de Gortari's vision of a new Mexico where acquiring debts was an inevitable part of being middle class. Now she says, "You can't hope for a better life -- even the smallest thing, a microwave, has become a luxury."

"I'm 39 years old, I have two girls in private schools, I have an apartment. In Mexico a woman my age, even with a college degree, has a tough time getting a job. This stand isn't just a dream, it's a necessity."