Argentina had been campaigning ferociously to stop the plant – which would represent the biggest FDI inflow in Uruguay’s history and the largest overseas investment by a Finnish company – but it seems to be running out of options.

Last week, the International Finance Corporation, the private sector arm of the World Bank, approved a $170m loan to Metsa-Botnia to undertake the construction work. The Multilateral Investment Guarantee Agency, a World Bank agency promoting investment in emerging markets, also agreed in principle to provide $350m of political risk insurance for the project.

They said they had carried out extensive due diligence by independent experts and felt that the mill would not have an adverse environmental impact. The plant is now expected to be operational in the middle of next year.

Lars Thunell, executive vice-president of the IFC, said: “Today’s decision paves the way for us to move forward and engage with the stakeholders to maximise economic, environmental and social benefits to local communities on both sides of the River Uruguay.”

However, Nestor Kirchner, the president of Argentina, said: “International interests have already chosen that this region must be in some way the dustbin of certain production processes and industries.

“It is sad that there are [Argentine] journalists who say that we had the wrong strategy. What is the wrong strategy? We begged the intransigent Uruguayan president to discuss with us, please, how could we get rid of Botnia, so that it did not contaminate [the area] visually and not lead to any future doubts about contamination.”

Earlier this year, Argentina managed to persuade Spanish company Ence, which had started building another pulp mill near Botnia’s, to relocate to an area in the centre of Uruguay. Ence’s plant will develop 500 million tons of pulp a year; Botnia’s will produce twice that amount.

Last year, Argentina appealed to the International Court of Justice at The Hague to intervene and stop the development of the two pulp mills, arguing that its small neighbour had broken an international treaty relating to the River Uruguay’s use.

In July, the court voted 14 to one against Argentina’s request (with only the Argentina-appointed judge voting in favour). In November, at a summit of Ibero-American states in Uruguay, Juan Carlos, the King of Spain, agreed to act as a facilitator between Argentina and Uruguay, to try to bridge the chasm between the two countries.

However, the Spanish government is concerned that the king has been placed in an impossible position and Uruguay seems even less likely to ask Botnia to relocate after winning the World Bank’s support.

Jason Mitchell