By Brian Ellsworth and Corina Pons
CARACAS (Reuters) - Venezuela opens talks with creditors on Monday to renegotiate a crippling debt that has left citizens sifting through garbage for food, as the once-prosperous OPEC nation seeks to avert a default that would plunge its economy into deeper crisis.
President Nicolas Maduro's government has summoned to Caracas investors who hold some $60 billion in junk bonds in a desperate attempt to shore up public finances squeezed by the unraveling socialist economy.
Although Maduro had said more than 400 investors would attend - or 91 percent of Venezuela's foreign debt holders, according to him - many were in fact skipping the meeting, largely over concerns about U.S. sanctions on senior Venezuelan officials.
But a handful of foreign bondholders did travel from New York while others sent local lawyers or representatives to the 2 p.m. (1800 GMT) meeting at the ornate "White Palace" over the road from the president's office, witnesses said.
About 80 bondholders were present an hour before the meeting was due to start, the witnesses said, with a red carpet and guard of honor on the entrance steps.
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Markets were optimistic on Friday that Venezuela would continue to service its debt, noting Maduro's government had made close to $2 billion in payments in the past two weeks, albeit delayed.
"People have bet on Venezuela declaring default - never," Maduro said on Sunday, insisting his government was the victim of a U.S.-promoted "economic war."
But many say that Maduro's promise to restructure and refinance debt rings hollow when U.S. sanctions make both options all but impossible, and that his government may be paving the way for a default despite promises to the contrary.
The economic implosion has already taken a brutal toll on Venezuelans. Citizens are increasingly suffering from malnutrition and preventable diseases because they cannot find food and medicine or cannot afford them because of triple-digit inflation.
The sight of poor Venezuelans eating from garbage bags has become a powerful symbol of decay. It contrasts sharply with the era of late socialist leader Hugo Chavez, when high oil prices helped fuel state spending and even the most humble citizens could travel abroad or buy the latest cellphone.
'NOTHING TO SAY TO THEM'
Sanctions imposed by U.S. President Donald Trump's administration, aimed at punishing Maduro's government for undermining democracy and violating human rights, block U.S. banks from acquiring newly issued Venezuelan debt.
The sanctions do not prohibit investors from attending.
But they are blocked from dealings with dozens of officials including Vice President Tareck El Aissami and Economy Minister Simon Zerpa. Those two were due to host Monday's meeting.
The president said earlier said this month he wanted to speak with creditors about restructuring, but also promised to continue making payments - leaving investors baffled.
"If they're going to continue paying, I don't have anything to say to them," said one bondholder who asked not to be identified and who was not attending Monday's meeting.
"It's when they say they're going to stop paying that I'd have reason to talk to them."
Adding to market anxiety, a committee of derivatives industry group ISDA was due to reconvene on Monday to discuss whether state oil company PDVSA has triggered a credit event through a late payment of its more than $1 billion 2017N bond.
Investors told Reuters, however, that the money had reached their accounts, albeit delayed. And Venezuelan bond prices were up across the board on Monday, with the benchmark PDVSA 2022 paper rising 3.25 percentage points.
It is not clear how a potential default would affect the struggling population, in part because the impact would depend on the government's strategy and the response of creditors.
Halting debt service would free up an additional $1.6 billion in hard currency by the end of the year. Those resources could be used to improve supplies of staple goods as Maduro heads into a presidential election expected for 2018.
But the strategy could backfire if it is met with aggressive lawsuits.
A default by state oil company PDVSA, which issued about half of the country's outstanding bonds, could ensnare the company's foreign assets such as refineries in legal battles - potentially crimping export revenue.
Bondholders would have fewer options if Venezuela rather than PDVSA defaults.
But the consequences of a default by the country could still be significant, said Mark Weidemaier, a professor of law at the University of North Carolina at Chapel Hill and an expert on international debt disputes and resolution.
Creditors could seek to block shipments of goods from leaving the United States for Venezuela or seize payments for those goods, Weidemaier said in a telephone interview.
"The real impact that a creditor can have in a sovereign default is to make it complicated for a government to engage in foreign commerce," he said. "Companies may have to use complicated transaction structures to prevent seizures, which is going to make them wary of doing business with Venezuela."
(Additional reporting by Deisy Buitrago; Editing by Andrew Cawthorne, Chizu Nomiyama and Frances Kerry)