Mexico, long considered the model debtor nation by bankers and government officials, has been cut off by the International Monetary Fund because it has failed to live up to agreements it made with the multinational lending agency, banking sources said last night.

The decision affects about $900 million that is left on a three-year loan Mexico received from the IMF in early 1983. Presumably, the IMF will require Mexico to take new economic steps before agreeing to release the balance on the country's loan.

The cutoff is a major blow not only to Mexico but to the three-year-old attempt by banks, debtor countries and the IMF to find a way to permit Latin American countries to pay the interest on their debts, make major economic reforms and return to economic growth.

A key goal of the process was not only to force the countries to "adjust" their economic policies to a far more unfavorable economic world but also to convince lenders to voluntarily make fresh funds available to the debtors.

The Mexican government oil company, Pemex, had planned to float a bond issue next month -- the first by a major Latin American debtor country in three years. Banking sources said the IMF action may scuttle it.

Reports of the IMF decision surfaced on a day in which Mexico City was severely damaged by a massive earthquake that by itself may do severe damage to the country's economic prospects.

The IMF decision also jeopardizes completion of a major loan agreement between Mexico and its bank lenders to postpone repayment of tens of billions of dollars of Mexico's debt until 1991. Banks began to sign the agreement last month, and some lenders have yet to approve it. "The recalcitrant banks are likely to dig in their heels as a result of the IMF action," according to an official of a major U.S. bank.

"I don't know if you can call Mexico's problems with the IMF a disaster," said one international official. "But it is disquieting."

The IMF apparently took the action because the Mexican government pumped up the economy early this year in anticipation of elections in early July. After the election, in which the ruling PRI party had faced a serious challenge in some states, the government announced renewed austerity measures.

But the Mexican economy has failed to meet most of the major targets it agreed upon with the IMF. Inflation, which had fallen steadily in 1983 and 1984, began to accelerate again under stimulative economic policies. The budget deficit widened, and domestic interest rates soared. Mexican citizens began to move their funds out of the country into safe havens like the United States.

Mexico, whose foreign debts approach $100 billion, triggered the so-called Latin American debt crisis in August 1982 when it announced to its bank lenders that it had run out of money.

One after another Latin American country followed Mexico into the crisis that was spawned by heavy borrowing, a huge jump in international interest rates and a sharp decline in demand for the mineral and agricultural commodities that account for the majority of Latin American export revenues.

Many countries like Argentina and Brazil sparred with the IMF over the types of economic policies they had to take to live in a world in which their interest bills were high, export revenues were declining and their ability to borrow new money from commercial banks was nonexistent. But Mexico took harsh austerity measures to reduce its government spending and divert more of its national income to paying its foreign debts. In return, in an agreement reached in early 1982, the IMF loaned Mexico about $5 billion over three years to ease its repayment burden, and the banks agreed to make billions of dollars in new loans to the country.