High interest rates threaten local production of Alcatel?s BTEs

High interest rates charged in Brazil compared with the cost of dollar and euro loans threaten local production of wireless equipment by Alcatel. For the time being, however, management says it?s going ahead with plans to start manufacturing base transceiver stations (BTEs) locally in July.
According to Jose Vazquez, director of business development, it won?t be economically viable to produce BTEs locally if the carriers that are currently building out networks or overlaying GSM confirm a preference for dollar loans.
?You can?t manufacture equipment in dollars and sell it for payment in local currency,? he says. Local-currency loans cost around 30% per annum, compared with 10% p.a. for foreign-currency loans.

Even if the Brazilian Real were to fall to 3.60 per US Dollar, say, at the end of the year, recovering slightly to 3.40 in 2004, it would still be better business to finance equipment purchases in foreign currency, he says.
Additionally, Mr Vasquez notes, lenders in Europe and the U.S. offer advantageous terms, such as three years grace and up to eight years for repayment.