By David Schepp BBC News Online North America business reporter in Washington

Finance ministers have sought to reassure consumers around the globe that the world economy is on sound footing and will continue to recoup from last year's recession.

O'Neill: Policies are sound

In comments made ahead of the meeting of finance ministers in Washington, Treasury Secretary Paul O'Neill said the US and world economies were on the mend after last year's recession and terror attacks.

He credited sound actions by the nation's central bank, the Federal Reserve, for the rebound in the US and urged others to follow suit.

"I believe that every country in our hemisphere, by following good policies, can create the conditions to weather the storms, keep productivity strong and raise economic growth to higher, sustainable levels," Mr O'Neill said.

The Group of Seven (G7) industrialised nations gathered on Friday ahead of the World Bank and International Fund annual meetings being held in the US capital.

They include France, Canada, the UK, Italy, Germany, the US and Japan.

Cautious policies

But even as the US secretary waxed positive about the economic recovery, some finance ministers warned their budgets were constrained, leaving them with few options to stimulate demand.

Argentina's Lavagna: Keen on getting millions in aid

A source told Reuters news agency that G7 officials believe "there's not much room left for budget policies to help the recovery and if action is needed, it will be on the monetary-policy side."

Western-nations' central banks have stubbornly refused to lower borrowing rates for fear of sparking inflation.

It is a view not shared by the IMF, which in issuing its World Economic Outlook on Wednesday stressed inflation in the near term is virtually non existent.

More importantly, it called on advance economies to loosen tight reins on interest rates, in the hope of stimulating demand.

Latin America crisis

Brazil and Argentina remain the developed world's biggest challenge at the moment.

With Argentina threatening default on billions of dollars worth of loans, the G7 fears Economy Minister Roberto Lavagna will not muster support for reforms needed to restart IMF aid.

Mr Lavagna has been highly critical of IMF, saying it is out of touch with Argentina's needs and its polices too rigid

"The situation is very difficult," the Reuters source said.

"[The G7] will have to see if we can help Argentina arrive at the elections in March and avoid a debt default even with international institutions such as the IMF."