Private sector involvement (PSI) refers to the participation of the private sector in projects of the government. It has come mostly to mean financial affairs, and specifically the participation of the private sector in the write downs of sovereign debt in instances of "haircut." The respective term for the state sector is "official sector involvement" (OSI).
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Although the term can denote any kind of private-sector participation into an existing government program, such as, for example, family planning or health care, it has come to mostly signify the private sector's participation in the losses taken in cases of sovereign debt write downs. The most prominent such case is, currently, the PSI in the sovereign-debt restructuring of Greece, after a significant haircut of it was agreed, in early 2012.
PSI should be distinguished from public–private partnership, a term that describes a government service or private business venture which is funded and operated through a partnership between a government agency and one or more private sector companies. As the definition of the term indicates, a public–private partnership refers to a project that begins as a partnership between government and private sector, while PSI signifies the subsequent participation, often unwilling, of the private sector to an already existing or ongoing government project.
Greek sovereign-debt crisis
The world's biggest debt-restructuring deal, affecting some €206bn of bonds, was finalized in February 2012, when the Eurogroup finalized a second bailout package for Greece. EU member-states agreed to a new €100 billion loan and a retroactive lowering of the bailout interest rates, while the International Monetary Fund would provide "a significant contribution" to that loan. Part of that deal was a PSI agreement, whereby private investors were asked to accept to write off 53.5% of the face value of Greek governmental bonds they're holding, the equivalent to an overall loss of around 75%.
If not enough private-sector bondholders had agreed to participate in the bond swap, per the PSI requirement, the Greek government had threatened to retroactively introduce a collective action clause to enforce participation. Eventually, private sector participation reached 83,5% of Greek bond holders.