According to "Allmovie", this movie was "meant to be a parody of the recent invasions of Grenada and the Falkland Islands."
The island in the movie is the Caribbean island St. Lucia, easily identified by the pointed peak in some scenes, one of the two Pitons, the island's most iconic landmarks. It was a former British colony, that gained full independence in 1979, although it is still part of the British Commonwealth.
English comedian John Cleese was originally slated to appear in the movie as Sir Malcolm. Cleese was also slated to appear as Governor Anthony Cloyden Hayes in another tropical island comedy, Club Paradise (1986), which was released in the U.S. around the same time. That part, in the end, went to Peter O'Toole.
The fictional island name of Cascara, which contained a wellspring of mineral water with a "slight laxative effect" was somewhat of a spoof, as the plant Cascara, (whose scientific name is "Rhamnus purshiana"), is said to produce its own laxative effects.
George Harrison: The ex-Beatle, and Handmade Films executive, as a band member of the Singing Rebels' Band.