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The name is possibly a reference to Jafar's pet macaw in Disney's Aladdin, who is in turn a reference to Iago from Shakespeare's Othello. One of his dialogue changes the original quote from "daw" to "macaw" as a further reference to this.
Prior to 31 October2016, interacting with Iago only gave the message "Iago glares at you." After this update, it was given dialogue and a chathead.