Soft music and idle chatter fill the air in the small but classy restaurant in an upscale Mexico City neighborhood. Suddenly, the music stops and the room falls silent. A policeman appears, bugle in hand. Blasting a painfully atonal fanfare, he announces the arrival of the First Lady of Mexico. As the audience breaks into applause, a petite, sharply dressed woman enters the room... he-e-e-e-e-r-e's Marta! She walks to center stage to address the crowd, but her triumphal entrance is marred by a critical miscalculation: she cannot see over the podium. So begins the stand-up comedy routine of Raquel Pankowsky, impersonator extraordinaire of Marta Sahagun de Fox.

With over-the-top haughtiness and a faintly ludicrous lisp that muddles half her words, Marta Segun, the First Lady's satirical alter ego, launches into a whirlwind monologue, stopping to examine every point of her melodramatic life. In between musical interludes and lofty allusions to her patriotism, "Marta" delves into her favorite subjects--the poor, children, women. She also mentions her charity "Robamos Mexico... uh, Vamos Mexico," deftly correcting the name from "Let's Rob Mexico" to "Let's Go Mexico." The crowd, numbering close to 100, bursts into laughter, for Segun is lampooning the very traits that exasperate so many Mexicans, especially the well-to-do types watching the show, about their real-life First Lady.

The crowds may cheer Pankowsky's vaudeville persona, but the real Marta Sahagun de Fox is a harder nut to crack. In recent weeks Martita, as she is widely known, has taken center stage in a blistering political scandal that has shaken Vicente Fox's ineffectual administration. More than halfway through his six-year term, Fox hasn't implemented any of the substantive reforms he promised during his 2000 presidential-election campaign. Nor is he likely to: with two years left before the next presidential balloting, Fox is struggling to maintain control over a rapidly fragmenting government and a divided political base wary of his wife's apparent presidential ambitions.

The crisis has been made worse in recent weeks by widespread unease over Marta's high-profile role in policymaking. In the past month two cabinet-level officials have left Fox's government for reasons directly related to Marta. Meantime Fox's center-right National Action Party (PAN) has been beset with charges of corruption. Marta herself is the subject of a congressional probe of financial irregularities involving her charitable organization, Vamos Mexico. And the hopes that Fox embodied when he unseated the long-ruling Institutional Revolutionary Party (PRI) have almost entirely vanished, replaced with political paralysis and fear. "This is the most important scandal Fox has faced," says Argentine author Olga Wornat, who wrote a biography of the First Lady last year.

Fox's latest problem erupted last week when his chief of staff and spokesman, Alfonso Durazo, resigned, leaving behind a 19-page letter filled with innuendo and accusation. In it, Durazo alleged that Fox was using his office to help launch Marta's presidential campaign. He accused the First Couple of attempting to establish a "dynasty" in the presidential palace of Los Pinos. The charge was particularly damaging because Mexicans remember--and resent--the PRI's old method of allowing presidents to handpick their successors. Durazo accused Fox and his wife of committing the "original sin" of Mexican politics by reverting to that strategy. In scathing language that sources close to Durazo say was toned down considerably before it was published, the outgoing aide said Mexico wasn't ready "to have a president leave the presidency to his wife." He ended the letter with an ominous message meant for the First Lady: "I promise that we are going to have a candidate for the presidency of the republic, and it is not going to be Marta." Ironically, it was Marta who recommended that Fox hire Durazo in 2000, when he was little more than an outcast PRI operative.

For months now Fox has been trying to deflect questions about his wife's political aspirations. In March he categorically denied she would seek any political office and said the two were planning to retire to their ranch in Guanajuato, where they would care for the poor and educate young children. Two days later Marta appeared to contradict her husband when she declared she hadn't yet ruled out a presidential run and was sure Fox would support her, whatever she decided to do. Last week, in the wake of Durazo's resignation, Fox interrupted a press conference he was holding in Brazil to send a calming message back home. "Mexico is in good, responsible hands," a visibly frustrated Fox told reporters.

Inside Mexico, though, Fox is widely seen as weak-willed and ineffective--a view certainly not helped by the increasingly active role Marta has adopted over time. Years before she worked for Fox as his campaign spokesperson, Marta was active in the lay branch of the Legion of Christ, a right-wing Roman Catholic order founded by a Mexican priest from her native state of Michoacan. The First Lady has spoken out in favor of better relations between church and state in Mexico, and millions of voters were astonished to see Fox invoke the name of the country's patron saint during his inauguration and later kiss the pope's ring in public. On at least two occasions, Marta has sat in on high-level cabinet meetings, and Fox has made no secret of his wife's influence, deepening the perception that Marta has overstepped her powers as First Lady. Some analysts believe Marta's high-profile role in her husband's administration has damaged Fox's ability to govern capably. "They're both now trapped in a box of their own making," says Denise Dresser, a political scientist at ITAM, a Mexican university. "She has become the puppeteer to his puppet. It's a lose-lose situation."

Marta's ambitions may have cost the president crucial political capital just when he needs it most--to pass his long-stalled reforms. Mexico's attorney general and Congress are scrutinizing financial irregularities that surfaced in an audit of Vamos Mexico earlier in the year. The organization's lavish fund-raising events, like a 2001 kickoff dinner featuring Elton John, have generated high overhead costs that have often exceeded the amounts the foundation has contributed to charitable bodies--and that in spite of generous donations of staff and office space from the presidency. Then, last month, the federal comptroller's office promised an investigation of links between Vamos Mexico, Mexico's national lottery and the privately run trust fund that distributes lottery proceeds to organizations serving the poor. The sister of the national lottery's director sits on the board of the First Lady's foundation, and that has fueled suspicions that lottery revenues are being funneled into Vamos Mexico to help promote Marta's political aims.

The First Lady has denied any wrongdoing--and none has been proved--but the charges have been politically devastating nonetheless. Mexicans have long seen the national lottery as an integral part of their country's natural resources, and millions of citizens have purchased lottery tickets for many years in the belief that the proceeds will benefit the needy. George Grayson, a professor of government at the College of William and Mary, believes the accusations have destroyed Marta's chances of making a run for the presidency, but says she could run for mayor of Mexico City or a seat in the Senate.

The growing crisis of confidence is damaging not just Fox, but also his party. The PAN has seen a steady decline in its support throughout the country since Fox's historic victory. Last week opposition parties took governorships in three key states the PAN had been contesting. Those and other defeats highlight the party's disarray; in recent months the PAN has been hurt by accusations of corruption that have tarnished its image as a party of squeaky-clean reformers. Two months ago the PAN governor of Morelos state, Sergio Estrada Cagigal, was embroiled in a drug-trafficking scandal amid reports that his police chief had been on the take from a notorious drug trafficker nicknamed El Azul ("the Blue One"), head of one of Mexico's largest cartels. The governor faces an investigation, and his party a loss of faith. "Fox has captured a lot of the big drug lords, but the flow of drugs has remained the same," says Jorge Chabat, of the Mexico City-based Center for Economic Research and Teaching. "What's the point of a government of change if it doesn't change anything?"

The First Lady remains popular throughout Mexico and still polls well among voters in the presidential horserace, running second after front runner and Mexico City Mayor Andres Manuel Lopez Obrador. But PAN leaders do not count themselves among her supporters, and have moved to block her candidacy through legal maneuvering. Senior party officials have stipulated that only 1 million card-carrying members can select the PAN's presidential-candidate--a strategy intended to prevent Marta's fans from turning out en masse to snatch the nomination away from the leadership's candidate of choice, Interior Minister Santiago Creel. Moreover, senior party officials have said that in the event she does declare her candidacy, Marta will not receive the support of the PAN hierarchy, making it virtually impossible to mount a successful campaign.

Amid all this drama, an aura of palace intrigue and conspiracy now permeates Los Pinos. A former administration official told NEWSWEEK that the infighting has left the president feeling rudderless. "The government doesn't obey the president," he says, "They just do what they want to do." Last week Fox railed against the press, accusing them of distorting the First Lady's intentions. Marta promised she would settle the matter once and for all this week. All of Mexico is waiting for her next performance.