Putin seeks more jobs to stabilize North Caucasus

Russia's Prime Minister Vladimir Putin speaks during a session of the Eurasian Economic Community Interstate Council in St. Petersburg December 11, 2009.

PYATIGORSK, Russia (Reuters) - Russian Prime Minister Vladimir Putin declared on Saturday that peace has returned to North Caucasus, the center of a growing Islamist insurgency, and called for the region's economy to be rebuilt.

Putin ordered a new Kremlin envoy to Russia's most violent region to improve the quality of life of its population by creating jobs, signaling a new approach to restoring stability -- something that military force has so far failed to achieve.

"The bandits have been fended off. We did this together... Together we won and returned the peace," Putin said at a meeting in region with Kremlin envoy Alexander Khloponin.

President Dmitry Medvedev grouped the most violent provinces together in a new federal district this week and appointed Khloponin, a former businessman, as his envoy to one of Russia's poorest regions.

"Now we need to take the next step, which, as it turns out, is no less difficult," said Putin.

Putin called for the creation of special economic zones to lure investors to the region, which remains very tense with a growing number of shootings and bomb attacks against police and officials.

"We need to seriously improve people's quality of life," he said. "High unemployment, of course, discredits the government and creates the basis for extremist moods. So now it is vital to launch the mechanisms for the creation of new jobs ... (and) new projects, stimulate the development of small and medium-sized companies, local industry, agriculture, infrastructure."

Medvedev has called the upsurge in violence in the region as Russia's biggest domestic political problem. Earlier this month, a suicide bomber killed seven policemen and wounded another 20 people in Dagestan by detonating a car packed with explosives at a traffic police depot.

Khloponin has been tasked with the social and economic development of the region. There is much to do. In Ingushetia, for example, unemployment is at 55 percent and over a quarter of the population lives below the poverty line.

Analysts welcome Moscow's shift of stance in the region, but say Khloponin faces a tough task to balance the interests and placate a complex web of clans and ethnic groups.

Local companies, still reeling from Russia's first recession in a decade, may also lack the necessary funds to invest in the region, even if they are not put off by the threat of violence.

But stimulating the economy of North Caucasus could be good experience as Russia strives to move the country as a whole away from dependence on natural resources, toward industry and more modern technologies.

(Writing by Toni Vorobyova; editing by David Stamp)