By Francesca Landini

ROME (Reuters) - Italy's coalition government on Thursday unveiled measures aimed at luring foreign capital back to Italy, but the political instability in the country led some to question whether the plan could be put into effect.

Prime Minister Enrico Letta said he planned to discuss the measures, which include tax incentives, consulting services, more streamlined procedures for start-ups and a new round of privatisations, with investors in New York next week.

Stopping a recent haemorrhage in foreign capital is considered key to restoring some dynamism to Italy's lethargic economy, which hasn't grown for more than a decade.

"Italy has a desperate need of foreign investments," Letta said during a news conference.

Letta was speaking a day after Silvio Berlusconi said in a video address that he would not topple the government. But the former premier's tone made clear that the ruling right-left coalition remains on shaky ground and prone to relentless bickering, even as Italy needs urgent economic reforms.

Business people doubted that the fractious administration would have the political heft to get the measures approved by parliament and then implemented.

Massimo Arrighi, a partner at management consultancy A.T. Kearney who advises foreign investors, says he expected only the privatization portion of the so-called "Destination Italy" plan to materialise. He said he feared the rest of the plan was "a book full of dreams".

Vittorio Cino, head of institutional relations at the Italian unit of Coca Cola, said he hoped the plan would start a broader discussion over what was needed to improve Italy's struggling economy.

Over the next few days, the government's measures will be posted on the Internet for public comment. "It is good to start a debate on an issue that is crucial for Italy to return to growth," Cino said.

Behind the recent investor flight from Italy are short-term problems - the country is experiencing its longest recession since World War Two - and more structural issues, such as high corporate taxes and a snail-paced justice system.

Some $9.6 billion was invested last year, down from an annual average of $36.6 billion in 2005-2007, according to the United Nations Conference on Trade and Development, a multilateral organisation that promotes international trade.

Of the measures unveiled on Thursday, some are already under way. Last year, Italy set up a dedicated court for commercial lawsuits involving non-Italian firms. Government officials say the fast-track tax consulting desk for companies is also about to be opened.

The government also plans, by the end of October, to unveil a list of new state assets to be put on the block. The state holds stakes of around 30 percent each in Finmeccanica <SIFI.MI>, Eni <ENI.MI> and Enel <ENEI.MI> and there has long been pressure to sell off parts of these holdings to cut Italy's huge debt, now at 130 percent of gross domestic product.

Yet no specific time frame has been set for other measures, including a promise to lower the high payroll taxes companies pay - a controversial issue that has long divided past governments.

"It's a great and ambitious plan, which if realized would transform the Italian business environment," said Giuseppe Recchi, the chairman of oil company Eni, who headed a committee of foreign companies that gave input on the government's plan.

(Reporting By Alessandra Galloni; Editing by Hugh Lawson)

 

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