KRASNAYA POLYANA, Russia (Reuters) -- President Dmitry Medvedev has said only economic and social development can quell an Islamist insurgency in Russia's north Caucasus and urged local leaders to back his new envoy to the impoverished region.
In one of his boldest initiatives since coming to power in May 2008, Medvedev last week grouped the most violent provinces on Russia's southern flank into a new federal district.
Medvedev, who considers violence in the North Caucasus Russia's biggest domestic political problem, bypassed the powerful military and security lobby and appointed former businessman Aleksandr Khloponin to oversee the region.
"The key to solving the problems of the district...does not lie in fanning passions through never-ending speculation that the main problems deep-rooted in the North Caucasus are crime and terrorism," Medvedev told North Ossetian head Taimuraz Mamsurov, meeting him in his residence near the Black Sea.
"The key lies namely in social and economic development.... We will try to make sure that Khloponin is given full support, and I hope that the regions that make up the district will act likewise," Medvedev said.
Khloponin faces an uphill task to win trust and support in the turbulent, mostly Muslim region, which is blighted with unemployment and survives on heavy subsidies from Moscow.
Local clan ties cement the intricate ethnic patchwork and help maintain the regional balance of power.
Amid almost daily suicide bombings and attacks on security forces, Medvedev appears to have conceded the point stressed by his own opponents that it is poverty that pushes many locals into the hands of Islamist militants.
The Kremlin chief had previously said that Khloponin, a former executive with miner Norilsk Nickel and governor of the Siberia's sprawling Krasnoyarsk region, had been chosen for his economic skills to oversee the troubled region.
Moscow has managed to pacify Chechnya where federal troops have fought two bloody wars since the mid-1990s.
But violence is now spreading into neighboring Ingushetia and Daghestan. Kremlin critics say local support for insurgents is bred by popular discontent over budget funds embezzled by the authorities and their heavy-handed clampdown on dissent.
"If this [social] task is met, this will of course change the economic and social landscape, and this will be the most important achievement that will help consolidate our state and improve the living standards of our people," Medvedev said.
Moscow fears that turmoil in the Caucasus, an important fuel transit region, if not tackled could spread to other areas in a a vast country reaching from the Baltic to the Pacific and embracing a patchwork of nationalities.