Rambo and I are sharing a couple of rums on a boat two-and-a-half-thousand clicks up the Amazon river. We are going to spend the night in a tree. Rambo – real name Aldenir Coti – is dressed for the occasion. His combat trousers are neatly pressed. He’s tied a red ribbon around his head. And he’s carrying a 12in plastic knife and a homemade bazooka if things go pear-shaped. He is also the star of the cheapest film at the Amazonas Film Festival (which ends today). With a total price tag of $25 (£12) I suspect it’s probably the cheapest film ever made.

Coti: the Incredible Story of Rambo from Sâo Jorge is Andersen Mendes’s documentary tribute to the 42-year-old actor’s obsession with Sylvester Stallone’s Vietnam icon. Coti, who can’t speak a word of English, has been imitating the character almost every day of his adult life. He has managed to play the role in three different films (The Rambo Stories) which he put together himself for miserable amounts of cash. He is revered in the slum district of Sâo Jorge in Manaus, Brazil, where he grew up. His wife thinks he’s totally insane. But there’s a childlike charm about the seriousness with which Coti lives his dream, when he’s not washing police cars or being a blacksmith.

He is not the only eccentric in Manaus. No one can work out what the Hollywood Blist actress Ling Bai (star of such classic hits as the front cover of Playboy and Sky Captain and the World of Tomorrow) is doing here, besides wearing as little as possible. If she’s not pole-dancing on trees she is dancing on the beach with exotically feathered locals or hogging the shower on the top deck of our boat.

But when the temperature at 9am is 39C it’s hardly surprising that no one can think straight. To my mind, this is the greatest film festival in the world. It’s Day Six and I have seen three films. As the 70-year-old French director Lionel Chouchan happily admits, the eco-festival he invented four years ago is dwarfed by its surroundings. It seems crazy to sit in a dark room watching eco-films and documentaries – however brilliant – when you can swim with pink dolphins in the morning and spend the night in a treehouse in the jungle.

But there is method in Chouchan’s apparent madness. Manaus is a shocking piece of town planning: a hodgepodge of smelly shanties, crumbling Victorian buildings, military bases and high-rise apartments that fetch a couple of million dollars. But the mighty Rio Negre that laps past the city is an awesome highway. The blood-red water is warmer than my hotel shower and the beaches (yes, beaches) are mostly pristine. It’s utterly weird seeing oil tankers and container ships thousands of miles inland. But eco-tourism is regenerating the city, and the film festival is a powerful weapon.

Alastair Fothergill and Mark Linfield’s documentary, Earth about the crises facing polar bears and humpbacked whales, among other creatures, puts the case eloquently. “A single movie like that can have more impact than any amount of Kyoto Protocol,” says Chouchan. “Initially the idea of running an eco-festival appalled me because there wasn’t enough decent original material being made, but that has changed dramatically since 2003. The debate has gripped fashionable directors – eco-priests – who want to get involved. And it has become a good way for locals to find new ways of making money other than logging, selling parrots or clearing the forest for [ironically] eco-fuels.”

According to Chouchan, Manaus was as rich and decadent as Vienna or Paris at the end of the 19th century. Rubber was the sticky white gold until two Englishmen stole seedlings, shipped them back to London, and in 1910 planted them in Malaysia. Within a few years the rubber industry in South America was on its knees.

The festival is housed mostly in the opulent neoclassical opera house built in 1896 that inspired Werner Herzog to make the maddest film of his career, Fitzcarraldo. It’s the most potent reminder of Manaus’s glittering past, and it’s impossible to suppress a shiver of awe at the beautifully painted ceiling, the sculpted putti, the polished wooden floor and seats, and the tear-drop perfection of the auditorium.

Outside, on the red carpet, Sri Sacdpraseuth, a marvellous Australian actor, and Micha Wald, the gifted young director of Horse Thieves (Voleurs de Chevaux), are fighting a losing battle for red carpet screams with those top poseurs, Rambo and Ling Bai, who are cheered to the skies by a popcorn seller with the legend “Jesus is God” written on his stall.

Their time will doubtless come, though. Sacdpraseuth is a comic joy in Michael James Rowland’s dead-pan comedy, Lucky Miles, about a boatful of squabbling immigrants off-loaded on a godforsaken stretch of coastline under the impression that they are yards away from Perth. And Wald makes a truly stunning debut as a director with a tale about two pairs of orphaned brothers whose paths cross fatally in Eastern Europe in 1856. It’s a scandal that the film hasn’t been snapped up for a UK release. I’ll have to get my mate Rambo on the case.

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