The OPEN I-O statement results in a file status 35, file not found, if the file does not exist.  The expectation is that OPEN I-O should create the file if it does not exist.

OPEN I-O will create a file only if the File Control entry for that file (the SELECT statement) includes the OPTIONAL phrase, or if the IO_CREATES Runtime Configuration is turned on.

Adding the following in the Runtime configuration file should resolve the error:

IO_CREATES ON