Aiming to reverse decades of economic decay under Saddam Hussein, Iraq's leadership council announced sweeping free-market reforms Sunday that would permit foreign investment and impose income taxes — but keep oil under government control.

Yet even the council's U.S. backers conceded that big multinationals were not likely to rush to Iraq, despite its promise, as long as instability reigns and violence erupts daily.

"Capital is a coward," U.S. Treasury Secretary John Snow said. "It doesn't go places where it feels threatened. Companies will not send employees to places that aren't secure."

Snow was addressing an international banking conference shortly after meeting with Iraq's new finance minister, Kamil Mubdir al-Gailani. He applauded al-Gailani's blueprint as "policies that make sense ... that offer real promise."

The reforms pave the way for a sell-off of the state-owned companies that dominated Iraq's economy under Saddam — if buyers can be found. The changes would allow 100 percent foreign ownership of Iraqi firms, except those in the oil sector.

Addressing the same group of pinstriped private bankers, al-Gailani said his objective was to "promote Iraqi economic growth and raise the living standards of all Iraqis as soon as possible."

Until Iraq can stand on its own, he also pleaded for international aid to meet its immediate humanitarian needs and to lay a "strong economic foundation for our eventual success ...

"We ask the world to help us," he said. "Seize this opportunity."

Washington has been seeking financial help from other nations to rebuild Iraq, with a conference of donors set for next month in Spain.

While acknowledging "some challenges" facing Iraq were due to the U.S.-led war, al-Gailani said "the true source of our problems stem from decades of economic mismanagement and corruption by Saddam Hussein."

According to World Bank figures, Iraq's total economic output grew from $3.6 billion in 1970 to $47.6 billion in 1980, thanks to that decade's oil boom. Iraq was a leader in the Arab world in health, education and culture, with a thriving middle class.

But during the 1980s, as Saddam waged a devastating war with Iran, growth stalled and debt soared as Iraq bought weapons. When sanctions were imposed after his 1990 invasion of Kuwait, the economy collapsed, with a gross domestic product of just $27.9 billion in 2001.

The planned reforms mark a sharp departure to what former businessman al-Gailani called a "free and market-oriented economy," which — if successful — would set Iraq apart from its Arab neighbors.

He pledged that Baghdad would "allow up to 100 percent foreign ownership in all sectors except natural resources."

Iraq's vast oil reserves — the world's second largest after Saudi Arabia's — would remain in government hands.

"They're going to run government finances based on oil revenues," Snow said.

Six foreign banks will be permitted to take over local Iraqi banks completely in the next five years, al-Gailani said. Other foreign banks will be allowed to purchase 50 percent stakes in local banks.

Individuals and corporations will have to start paying a 15 percent maximum tax rate starting Jan. 1, and a 5 percent "reconstruction surcharge" will be levied on all imports except humanitarian goods.

Foreigners will not be allowed to own land, but they will be permitted to lease it for up to 40 years.

Under the three decades of rule by Saddam's Baath party, most companies were state-owned or controlled, except for some small private businesses. There has been no foreign ownership in Iraqi companies since sanctions were imposed in 1991, though before that there were some joint ventures, particularly in hotels and tourism. There was no income or sales taxes, though there was a tax on some private businesses.

"Working with our partners in the (U.S.-led) Coalition Provisional Authority, we are providing Iraqi citizens the freedom and opportunity they were denied for so long," al-Gailani said.

But Snow emphasized that Iraq must become secure to attract investment. U.S. troops are attacked frequently, and there have been several incidents of Americans mistakenly attacking civilians. In addition, oil pipelines have been repeatedly sabotaged by explosions blamed on Saddam loyalists.

"We won't have economic prosperity in the region until there is security," Snow said.

Officials of the World Bank and International Monetary Fund, which are holding their fall annual meetings in Dubai this week, praised Iraq's plans.

"The steps they are taking are major steps forward in terms of creating an environment for investment," regional World Bank director Joseph Saba told The Associated Press.

IMF Managing Director Horst Kohler called it "remarkable ... also to have Iraqi people themselves involved to define an economic strategy for recovery and development."

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