Uruguay's President Tabaré Vázquez has backed out on an agreement that he had made with Argentine President Néstor Kirchner calling for the suspension of the construction of pulp mills being built in Uruguay by the Finnish company Metsä Botnia and the Spanish Ence.
The planned pulp mills on the Uruguayan side of a river that forms the border between the two South American countries has sparked considerable anger in Argentina over feared environmental damage.
Vázquez said at a press conference held in Bolivia on Monday, that no such agreement existed.
"Argentina's President Kirchner recognised Uruguay's right to the factories. The mills will ultimately be built", Vázquez said.
Uruguay's leadership confirmed the statement on Tuesday.
On Saturday, the presidents of the two countries made an announcement in connection with the inauguration of the President of Chile that they would ask Metsä Botnia and Ence to suspend the construction of the mills currently being put up in Fray Bentos for 90 days.
Metsä Botnia said on Monday that it would continue the construction until further notice from Uruguayan officials. On Tuesday the company said that the situation had not changed.
The announcement by the two presidents also included an agreement that protesters on the Argentine side of the river would be asked to remove the road blocks that have cut off two important bridges linking the two countries.
"As long as the Argentines keep the roads shut, the government of Uruguay will not stop the plants", President Vázquez said.
Uruguay sees the road blocks as a serious violation of human rights, as they prevent free movement of people.
Uruguay has calculated that the action has caused about EUR 170 million financial in losses to Uruguay.
The Argentine protesters decided on Monday evening to continue their action. Juan Veronesi, one of the leaders of the Asamblea Ambiental environment group, said that the demonstrators would not go away until they are certain that the factories will be stopped.
Veronesi suspects that Vázquez changed his mind because of heavy criticism in his own country.
The Argentine government has criticised what it sees as inflexibility on the part of the demonstrators. An anonymous government source lamented to the newspaper Página 12 that the roadblocks were still in place, even though the government has created the preconditions for reaching an understanding and starting negotiations.
The Organisation of American States (OAS) has offered to mediate between Uruguay and Argentina in the matter.
