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Uruguay defies Argentina, lets UPM raise pulp output

By Felipe Llambias

MONTEVIDEO, Oct 2 (Reuters) - Uruguay on Wednesday allowed the world's top graphic paper maker, Finland's UPM-Kymmene , to increase pulp production at a local plant, raising tensions with neighboring Argentina over accusations of environmental damages.

The plant, located in Uruguay close to the Argentine border, will be allowed to produce up to 1.2 million tonnes of pulp per year, up from the previously permitted 1.1 million tonnes.

Argentine Foreign Minister Hector Timerman denounced the "unilateral" decision by Uruguay, and said Argentina would take its case to the International Court of Justice in The Hague.

"It is lamentable that the interests of UPM are so powerful that they have turned into the factor that determines the relationship between Uruguay and Argentina," he said.

Argentina has said the pulp mill pollutes the Uruguay River, which separates the two countries. Officials from Uruguay and Argentina met over the years-old dispute this week but failed to reach an agreement on the plant's output.

UPM-Kymmene had requested permission to increase pulp production to 1.3 million tonnes.

"We have authorized an increase of half of what they asked for," Uruguayan President Jose Mujica said, adding that his decision was "provisional" and subject to UPM-Kymmene's compliance with environmental standards.

"The permanence of this decision depends on the level of compliance," Mujica said. "We are conscious that we have to care for the environment."

Environmentalists have protested by blocking the bridge that provides access to the plant from Argentina, but Mujica said the installation meets international environmental standards.

He suggested that Argentina's position may be influenced by the country's October mid-term election, which will determine how much clout President Cristina Fernandez will have in Congress during her final two years in power.

"Argentina is immersed in an electoral campaign at the moment," he said. "The political climate during a campaign is not the best climate for reasonable debate."