CARACAS (Reuters) - The prospect of a Venezuelan debt default triggering a clash between revolutionary socialists and foreign creditors has overshadowed an equally complicated dilemma facing the OPEC nation: a standoff with its own citizens who are bondholders.

Though Venezuela’s junk bonds are popular among high-rolling Wall Street funds, they are also widely held by Venezuelans due to a decade-long Socialist Party policy of subsidizing the purchase of foreign debt by individual investors.

Large Venezuelan businesses have also plowed significant resources into bonds to use the exorbitant yields to compensate for sharp declines in sales amid the implosion of the country’s socialist economic system.

The result is that any future debt negotiations will include Venezuelans ranging from high-net-worth individuals to humble retirees and college professors.

Many may be unwilling to accept the major losses implied by the restructuring that the country’s President Nicolas Maduro proposed last month, sending debt prices plunging.

The government could face intense lobbying from Venezuelan businesses and wealthy individuals as well as ballot-box-pressure from middle-class bondholders to protect their investments. But without a large “haircut” to reduce the debt service Venezuela has to pay, the country will likely struggle to bring its economy out of recession.

“Venezuelan bond investors range from taxi drivers to large companies, and everything in the middle,” said Victor Silva of local brokerage Kapital, which has intermediated the sale of paper issued by Venezuela and state oil company PDVSA.

“A lot of companies also got in to protect themselves from the depreciation of the currency. Even very orthodox companies who were never involved in capital markets started buying them as a means of hedging.”

It is not immediately clear what percentage of the country’s $60 billion in outstanding bonds are held by Venezuelan individuals.

New York-based Torino Capital estimates “resident holdings” of such debt at around $14 billion, though a significant portion of that is believed to be in the hands of state institutions.

The Information Ministry did not immediately respond to an email seeking comment.

While Maduro’s government has said it wants to restructure Venezuela’s foreign debt, it has continued to make payments, at least so far. Still, a number of the bonds are already in default because interest payments have been delayed beyond the established grace period. This has created nervousness among individual investors who depend on the interest payments to meet their living expenses, according to two brokers.

CHEAP DOLLARS, CHEAP BONDS

Late Socialist leader Hugo Chavez, who in 2003 created Venezuela’s currency control system, for years encouraged the purchase of dollar-denominated bonds by allowing Venezuelans to buy them in local currency at a subsidized exchange rate.

Most individuals quickly flipped the notes to obtain dollars, but some held on to the bonds because they provided interest income in hard currency.

Several individuals and businesses contacted by Reuters confirmed that they owned Venezuelan bonds but declined to be named, citing security risks associated with publicly discussing having dollar savings in a country where hard currency is scarce and kidnappings abundant.

One college professor who holds Venezuelan bonds noted that Chavez spoke about the “democratization of capital,” which encouraged people with little investment experience to buy the bonds.

Venezuelan debt has historically been seen as a high-risk investment for individuals with little financial experience. Due to increased concern about default, it is now seen as exceptionally risky even for investment professionals.

“When the bonds matured, people would reinvest them in other Venezuelan bonds, or in some cases use the proceeds to cover post-graduate degrees,” said the professor, in reference to coworkers who also held bonds.

The 2014 collapse in oil prices pushed Venezuela’s ailing economy into crisis and led to a dramatic decline in the bonds’ prices as many investors worried that Maduro would stop paying.

Business owners who understood the Socialist Party’s commitment to paying debt despite its revolutionary rhetoric started buying the bonds to protect revenue from constant devaluation of the bolivar currency, according to brokers consulted by Reuters.

As the economy worsened, the bonds’ yields - which are as high as 220 percent - provided revenue to maintain bare-bones operations in efforts to avoid shuttering businesses or selling them for a pittance.

“These bonds offer income in dollars under clear rules in an environment in which there are no clear rules,” said one broker who has helped businesses purchase such bonds.